As filed with the Securities and Exchange Commission on May 16, 2025

Registration Nos. 333-284112

and 333-284112-01

 

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

Amendment No. 2

to

FORM SF-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

 

KENTUCKY POWER COMPANY		KENTUCKY POWER COST RECOVERY LLC
(Exact name of registrant, sponsor and depositor as specified in its charter)		(Exact name of registrant and issuing entity as specified in its charter)
Kentucky		Delaware
(State or other jurisdiction of incorporation or organization)		(State or other jurisdiction of incorporation or organization)
1-6858
(Commission File Number)
0000055373		0002050048
(Central Index Key Number)		(Central Index Key Number)
61-0247775		33-2363654
(I.R.S. Employer Identification Number)		(I.R.S. Employer Identification Number)
1 Riverside Plaza Columbus, OH 43215-2373 (614) 716-1000		1645 Winchester Avenue Ashland, Kentucky 41101 606-929-1488
(Address, including zip code, and telephone number, including area code, of depositor’s principal executive offices)		(Address, including zip code, and telephone number, including area code, of issuing entity’s principal executive offices)

 

 

David C. House, Associate General Counsel

American Electric Power Service Corporation

1 Riverside Plaza

Columbus, Ohio 43215-2373

(614) 716-1630

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

 

 

With Copies to:

 

Robert G. Stephens George J. Vlahakos Sidley Austin LLP 1000 Louisiana Street, Suite 5900 Houston, Texas 77002 (713) 495-4500		Peter S. Morgan Alan Hoffman Winston & Strawn LLP 200 Park Avenue New York, New York 10166 (212) 294-6700

 

 

Approximate date of commencement of proposed sale to the public:

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

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

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

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

 

 

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

 

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

 

Subject to Completion, dated May 16, 2025

PRELIMINARY PROSPECTUS

$477,749,000 Series 2025 Senior Secured Recovery Bonds

Kentucky Power Company

Sponsor, Depositor and Servicer

Central Index Key Number: 0000055373

Kentucky Power Cost Recovery LLC

issuing entity

Central Index Key Number: 0002050048

 

Tranche

Expected Weighted Average Life(Years)

Principal Amount Offered*

Scheduled Final Payment Date

Final Maturity Date

Interest Rate

Initial Price to Public

Underwriting Discounts and Commissions

Proceeds to issuing entity (Before Expenses)

CUSIP/ISIN

A

$

477,749,000

%

%

%

$

*	Principal amounts are approximate and subject to change.

The total initial price to the public is $    . The total amount of the underwriting discounts and commissions is $    . The total amount of proceeds to the issuing entity before deduction of expenses (estimated to be $    ) is $    . The principal and interest will be paid semi-annually. The first expected payment date is    , 2026.

 

 

Investing in the Series 2025 Senior Secured Recovery Bonds involves risks. Please read “Risk Factors” beginning on page 20 to read about factors you should consider before buying the bonds.

Kentucky Power Company, as “depositor,” is offering $477,749,000 of Series 2025 Senior Secured Recovery Bonds, referred to in this prospectus as the “Bonds.” Kentucky Power Company is also the “seller,” initial “servicer” and “sponsor” with regard to the Bonds.

Each Bond will be entitled to interest in    and    of each year, beginning on    , 2026. Interest will accrue from the date of issuance and will be included in the purchase price if the Bonds are delivered after that date. On each payment date the Bonds will be entitled to payment of principal based on a sinking fund schedule described in this prospectus under “Expected Sinking Fund Schedule,” but only to the extent funds are available after payment of certain fees and expenses and after payment of interest on the Bonds.

We are Kentucky Power Cost Recovery LLC, and we are the “issuing entity” of the Bonds. The Bonds are secured by our assets which consist principally of our right to receive certain special “charges” (or “cost recovery charges”), which Kentucky Power Company is entitled to impose and collect from all of its existing and future retail customers receiving electric service, and to periodically adjust those charges pursuant to a true-up mechanism. Please see “Security for the Bonds” and “Description of the Cost Recovery Property” in this prospectus.

The Kentucky Public Service Commission, the regulator of Kentucky Power Company, issued a Financing Order pursuant to which Kentucky Power Company is entitled to impose, collect and receive charges from all of its existing and future retail customers on a joint basis according to rate schedules calculated to generate sufficient revenues to pay interest and principal on the Bonds. The Financing Order requires that the charges be adjusted at least semi-annually, and permits such true-ups to occur more frequently if necessary to ensure that Kentucky Power Company recovers charges in the amounts required for us to make timely payments of interest

on the Bonds and to repay the principal of the Bonds in accordance with the sinking fund schedule described in this prospectus. Credit enhancement for the Bonds will be provided by such statutory true-up mechanism, as well as by general and excess funds subaccounts held under the indenture governing the Bonds. Kentucky Power Company is permitted to use the proceeds from the sale of the Bonds to recover certain costs set forth in the Financing Order, which is described in this prospectus under “Use of Proceeds.”

The Bonds represent obligations only of the issuing entity and are secured only by the assets of the issuing entity, consisting principally of the Cost Recovery Property and related assets to support its obligations under the Bonds. Please see “Security for the Bonds” and “Description of the Cost Recovery Property” in this prospectus. Neither Kentucky Power Company nor any of its affiliates (other than the issuing entity) are liable for any payments on the Bonds. The Bonds are not a debt or general obligation of the Commonwealth of Kentucky, the Kentucky Public Service Commission or any other governmental agency or instrumentality and are not a charge on the full faith and credit or the taxing power of the Commonwealth of Kentucky or any governmental agency or instrumentality.

Under the Financing Order, the Kentucky Public Service Commission guarantees that it will act to ensure the charges are in an amount sufficient to pay interest and scheduled principal on the Bonds. The Kentucky Public Service Commission’s obligations relating to the Bonds, including the specific actions that it has guaranteed to take, under the Financing Order are direct, explicit, irrevocable and unconditional upon issuance of the Bonds, and under the Financing Order are legally enforceable against the Kentucky Public Service Commission, which is a United States public sector entity, in accordance with Kentucky law.

All matters relating to the structuring, marketing and pricing of the Bonds have been considered jointly by Kentucky Power Company and by designated personnel of the Kentucky Public Service Commission.

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

The underwriters expect to deliver the Bonds through the book-entry facilities of The Depository Trust Company for the accounts of its participants including Clearstream Banking, S.A. and Euroclear Bank SA/NV, as operator of the Euroclear System against payment in immediately available funds on or about    , 2025.

 

 

Joint Book-Running Managers

 

Jefferies LLC		Guggenheim Securities, LLC		SMBC Nikko Securities America, Inc.

 

 

The date of this prospectus is      

TABLE OF CONTENTS

 

ABOUT THIS PROSPECTUS			1
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION			2
TRANSACTION OVERVIEW			4
PROSPECTUS SUMMARY OF TERMS			6
KEY QUESTIONS AND ANSWERS REGARDING THE BONDS AND THE TRUE-UP MECHANISM			16
RISK FACTORS			20
RISKS ASSOCIATED WITH POTENTIAL JUDICIAL, LEGISLATIVE OR REGULATORY ACTIONS			20
SERVICING RISKS			23
STORM RELATED RISK			26
RISKS ASSOCIATED WITH POTENTIAL BANKRUPTCY PROCEEDINGS OF THE SELLER OR THE SERVICER			26
OTHER RISKS ASSOCIATED WITH AN INVESTMENT IN THE BONDS			30
REVIEW OF COST RECOVERY PROPERTY			35
THE KENTUCKY UTILITIES ACT			38
KENTUCKY POWER COMPANY’S FINANCING ORDER			43
Kentucky Power Company’s Financing Order			43
Collection of Charges			43
Issuance Advice Letter			43
Charge Rider			44
Statutory True-Ups			44
Statutory True-Ups-Credit Risk			45
Allocation			45
Servicing Agreement			45
Binding on Successors			45
DESCRIPTION OF THE COST RECOVERY PROPERTY			46
Creation of Cost Recovery Property; Financing Order			46
Charge Rider; Charges			46
Billing and Collection Terms and Conditions			47
THE SELLER, SERVICER, DEPOSITOR AND SPONSOR			48
General			48
Municipalization			48
Servicing Experience			49
Kentucky Power Company Customer Base and Electric Energy Consumption in the Kentucky Power Company Service Territory			49
Electricity Delivered to Retail Customers, Electric Delivery Revenues and Retail Customers			50
Forecasting Revenue			50
Annual Forecast Variance For Revenue			51
Billing and Collections			51
Days Sales Outstanding			52
Delinquencies			53

 

i

KENTUCKY POWER COST RECOVERY LLC, THE ISSUING ENTITY			54
Restricted Purpose			55
Our Relationship with Kentucky Power Company			56
Our Relationship with the Kentucky Public Service Commission			56
Our Management			56
Manager Fees and Limitation on Liabilities			58
We Are a Separate and Distinct Legal Entity from Kentucky Power Company			58
Administration Agreement			59
Intercreditor Agreement			59
Continuing Disclosure: SEC Filings			59
DESCRIPTION OF THE BONDS			60
General			60
Payment and Record Dates and Payment Sources			60
Interest Payments			61
Principal Payments			61
Expected Sinking Fund Schedule			63
Expected Principal Ending Balances			64
Distribution Following Acceleration			64
Optional Redemption			64
Payments on the Bonds			64
Fees and Expenses			65
Bonds Will Be Issued in Book-Entry Form			66
Definitive Bonds			69
Conditions of Issuance of Additional Bonds and Acquisition of Additional Cost Recovery Property			69
Allocations as Between Series			70
Access of Bondholders			70
Reports to Bondholders			70
Website Disclosures			71
We and the Trustee May Modify the Indenture			71
Our Covenants			74
Events of Default; Rights Upon Event of Default			75
Actions by Bondholders			77
Annual Report of Trustee			77
Annual Compliance Statement			77
No Recourse to Others			77
THE TRUSTEE			79
SECURITY FOR THE BONDS			82
General			82
Issuance of Additional Bonds			82
Allocations as Between the Bonds and Additional Series			82
Pledge of Collateral			83
Security Interest in the Collateral			84
Secured Party Rights			85
Description of Indenture Accounts			85
How Funds in the Collection Account will be Allocated			87
State Pledge			88

 

ii

WEIGHTED AVERAGE LIFE AND YIELD CONSIDERATIONS FOR THE BONDS			89
Weighted Average Life Sensitivity			89
THE SALE AGREEMENT			91
Sale and Assignment of the Cost Recovery Property			91
Seller Representations and Warranties			91
Covenants of the Seller			95
Indemnification			97
Successors to the Seller			99
Amendment			99
THE SERVICING AGREEMENT			100
Servicing Procedures			100
Servicing Standards and Covenants			100
True-Up Adjustment Process			101
Remittances to Collection Account			102
Servicing Compensation			103
Servicer Representations and Warranties; Limitation on Servicer’s Liability			104
The Servicer Will Indemnify Us, the Bondholders and the Kentucky Public Service Commission in Limited Circumstances			105
Reporting and Evidence as to Compliance			106
Matters Regarding the Servicer			106
Servicer Defaults			107
Rights Upon a Servicer Default			107
Waiver of Past Defaults			108
Successor Servicer			108
Amendment			109
HOW A BANKRUPTCY MAY AFFECT YOUR INVESTMENT			110
USE OF PROCEEDS			114
PLAN OF DISTRIBUTION			115
The Underwriters’ Sales Price for the Bonds			115
No Assurance as to Resale Price or Resale Liquidity for the Bonds			115
Various Types of Underwriter Transactions That May Affect the Price of the Bonds			115
AFFILIATIONS AND CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS			117
MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES			118
General			118
Taxation of the Issuing Entity and Characterization of the Bonds			119
Tax Consequences to U.S. Holders			119
Tax Consequences to Non-U.S. Holders			120
Information Reporting and Backup Withholding			121
FATCA			122
MATERIAL KENTUCKY INCOME TAX CONSEQUENCES			123
ERISA CONSIDERATIONS			124
General			124
Regulation of Assets Included in a Plan			125
Prohibited Transaction Exemptions			125
Consultation with Counsel and Representation			126

 

iii

LEGAL PROCEEDINGS			127
RATINGS FOR THE BONDS			128
WHERE YOU CAN FIND MORE INFORMATION			128
INCORPORATION BY REFERENCE			130
INVESTMENT COMPANY ACT OF 1940 AND VOLCKER RULE MATTERS			131
RISK RETENTION			132
LEGAL MATTERS			133
OFFERING RESTRICTIONS IN CERTAIN JURISDICTIONS			134
GLOSSARY OF DEFINED TERMS			136

 

iv

ABOUT THIS PROSPECTUS

This prospectus is part of a registration statement filed with the Securities and Exchange Commission, or the “SEC.” This prospectus provides information about us, the Bonds and Kentucky Power Company, the depositor, sponsor and servicer. This prospectus describes the terms of the Bonds offered hereby. You should carefully review this prospectus, any free writing prospectus we file with the SEC, and the information, if any, contained in the documents referenced in this prospectus under the heading “Where You Can Find More Information.”

References in this prospectus to the terms “we,” “us” or the “issuing entity” mean Kentucky Power Cost Recovery LLC, a Delaware limited liability company, the entity which will issue the Bonds. References to the “Bonds,” unless the context otherwise requires, means the Series 2025 Senior Secured Recovery Bonds offered pursuant to this prospectus. References to “Kentucky Power Company,” the “seller,” the “depositor” or the “sponsor” mean Kentucky Power Company. References to the “bondholders” or the “holders” refer to the registered holders of the Bonds. References to the “servicer” refer to Kentucky Power Company and any successor servicer under the servicing agreement referred to in this prospectus. References to the “Kentucky Utilities Act” refer collectively to Chapter 278 of Title XXIV Public Utilities (KRS §§ 278.010, 278.670-.696) and Chapter 65 Counties, Cities, and Other Local Units of the act relating to investor-owned utilities (KRS § 65.114), as amended from time to time. Unless the context otherwise requires, the term “customer” or “retail customer” means all existing and future retail customers receiving electric service from Kentucky Power Company or its successors or assignees under rate schedules approved by the Kentucky Public Service Commission even if a retail customer elects to purchase electricity from an alternative electric supplier following a fundamental change in regulation of public utilities in the Commonwealth of Kentucky.

Unless the context otherwise requires, references to the “Financing Order” means the Financing Order issued by the Kentucky Public Service Commission to Kentucky Power Company on April 11, 2025, in Case No. 2023-00159, which amends, restates and supersedes the Financing Order dated January 10, 2024.

You can find a glossary of some of the other defined terms we use in this prospectus on page 136 of this prospectus.

We have included cross-references to sections in this prospectus where you can find further related discussions. You can also find references to key topics in the table of contents on the preceding pages. Please see the table of contents to locate these sections.

You should rely only on the information contained or incorporated by reference in this prospectus and in any free writing prospectus from us or the underwriters specifying the terms of this offering. Neither we nor any underwriter, agent, dealer, salesperson, the Kentucky Public Service Commission or Kentucky Power Company has authorized anyone else to provide you with any different information. If anyone provides you with different or inconsistent information, you should not rely on it. We are not offering to sell the Bonds in any jurisdiction where the offer or sale is not permitted. The information in this prospectus and any free writing prospectus is current only as of the date of this prospectus.

 

1

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION

Some statements contained in this prospectus may be “forward-looking statements” within the meaning of the Securities Act of 1933, as amended (the “Securities Act”) and the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Statements concerning expectations, beliefs, plans, objectives, goals, strategies, future events or performance and underlying assumptions and other statements which are not historical facts, including statements in the documents that are incorporated by reference as discussed in this prospectus under the heading “Where You Can Find More Information,” are forward-looking statements within the meaning of the federal securities laws. Actual events or results may differ materially from those expressed or implied by these statements. In some cases, you can identify our forward-looking statements by the words “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “forecast,” “goal,” “intend,” “may,” “objective,” “plan,” “potential,” “predict,” “projection,” “should,” “will,” or other similar words.

We have based our forward-looking statements on our management’s beliefs, expectations and assumptions based on information available to our management at the time the statements are made. We caution you that assumptions, beliefs, expectations, intentions and projections about future events may and often do vary materially from actual results. Therefore, we cannot assure you that actual events or results will not differ materially from those expressed or implied by our forward-looking statements. In light of these risks and uncertainties, the events described in the forward-looking statements might not occur or might occur to a different extent or at a different time than we have described. For additional details regarding these and other risks and uncertainties, see “Risk Factors” in this prospectus.

The following are some of the factors that could cause actual results to differ from those expressed or implied by our forward-looking statements:

 

•

state and federal legislative, judicial and regulatory actions or developments, including deregulation, re-regulation, restructuring of the electric utility industry and changes in, or changes in application of, laws or regulations applicable to various aspects of Kentucky Power Company’s business;

 

•

the accuracy of the servicer’s estimates of market demand and prices for energy;

 

•

the accuracy of the servicer’s estimates of residential and non-residential changes in Kentucky Power Company’s customer base;

 

•

changes in market demand and demographic patterns;

 

•

weather variations and other natural phenomena including ice or snow storms, floods and other weather-related events and natural disasters affecting Kentucky Power Company’s retail customer energy usage;

 

•

the operating performance of Kentucky Power Company’s facilities;

 

•

the accuracy of the servicer’s forecast of revenue or the associated electrical consumption or the payment of charges;

 

•

the reliability of Kentucky Power Company’s systems, procedures and other infrastructure necessary to operate the retail electric business;

 

•

economic, regulatory, or workforce impacts related to pandemics;

 

•

changes in climate and weather conditions, including natural disasters such as wind and ice storms, hurricanes, floods and droughts;

 

•

economic conditions affecting Kentucky Power Company’s service territories, including the economy’s effects on customer demand for utility services;

 

•

acts of war or terrorism or other catastrophic events affecting Kentucky Power Company’s retail customer revenue or energy usage;

 

2

•

direct or indirect results of cyber-attacks, security breaches or other attempts to disrupt the business of Kentucky Power Company;

 

•

the ability of Kentucky Power Company’s customers to continue paying their utility bills;

 

•

alternative energy suppliers and delivery arrangements;

 

•

blackouts or disruptions of interconnected transmission systems (the regional power grid);

 

•

terrorist attacks, cyberattacks, or other malicious acts that may damage or disrupt operating or information technology systems;

 

•

the impact of changes in interest rates and global market conditions on financing;

 

•

declining energy demand related to customer energy efficiency, conservation measures, technological advancements, or increased distributed generation;

 

•

the unpredictability of civil unrest and its direct and indirect impact on Kentucky Power Company; and

 

•

other factors we discuss in this prospectus.

You should not place undue reliance on forward-looking statements. Each forward-looking statement speaks only as of the date of this prospectus, and, except as required by law, we undertake no obligation to update or revise any forward-looking statement, including unanticipated events, after the date of this prospectus, except as required by law. New factors emerge from time to time and it is not possible for management to predict all of such factors, nor can it assess the impact of each such factor on the business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statement.

All subsequent written and oral forward-looking statements attributable to us and Kentucky Power Company or to persons acting on our behalf are expressly qualified in their entirety by the applicable cautionary statements.

 

3

TRANSACTION OVERVIEW

Who We Are

We are Kentucky Power Cost Recovery LLC, a newly formed finance subsidiary of Kentucky Power Company. We have been formed for the purpose of issuing the Series 2025 Senior Secured Recovery Bonds, referred to as the “Bonds.” We will use the proceeds of the Bonds to acquire the Cost Recovery Property from Kentucky Power Company.

We are a ring-fenced and bankruptcy remote finance subsidiary with no employees and no operations other than issuing and repaying the Bonds. We have contracted with Kentucky Power Company to act as servicer for the Cost Recovery Property and perform any related administrative functions. We have two independent managers on our board and we are prohibited by our governing documents from filing for bankruptcy until the Bonds have been fully repaid without the consent of those independent managers. We have taken these measures to prevent any creditors, including creditors of our parent, Kentucky Power Company, from having any claim on our assets so that these assets remain available solely to repay the Bonds.

What is the Cost Recovery Property?

The Cost Recovery Property consists of all the rights and interests of Kentucky Power Company under the Financing Order that are being transferred to us, including:

1. the irrevocable right to impose and collect cost recovery charges from all current and future retail customers of Kentucky Power Company based on future sales of electricity generation, transmission and distribution services to those customers, which has been authorized by legislation and approved by the Commonwealth’s utility regulator, Kentucky Public Service Commission, and

2. the right to adjust the charges to customers if collections are insufficient to pay interest and scheduled principal on the Bonds, which is referred to as the “true-up mechanism.”

The Kentucky Public Service Commission has guaranteed that it will implement all required adjustments to the charges by means of the true-up mechanism.

The Commonwealth of Kentucky has pledged in the Kentucky Utilities Act that it will not take or permit any action that would impair the value of the Cost Recovery Property or the rights and remedies of the holders of the Bonds.

How the Bonds Will Be Repaid

1. Kentucky Power Company will add a cost recovery charge to the monthly bill on all retail customers which is calculated based on forecasted usage and revenue data from customers of electricity generation, transmission and distribution services. The cost recovery charge is adjusted periodically and continually to ensure that sufficient revenues are collected to make payments of interest and scheduled principal on the Bonds.

2. On each business day, Kentucky Power Company will deposit into our collection account the cost recovery charges estimated to have been received from retail customers.

3. On a monthly basis, Kentucky Power Company will reconcile the estimated revenues with the actual collections it has received and, if actual payments exceed estimated payments, Kentucky Power Company will deposit the difference into our excess funds subaccount to make future payments on the Bonds.

4. On each semi-annual payment date, we will pay interest accrued on the Bonds during the preceding six months and scheduled principal on the Bonds in accordance with the sinking fund schedule.

 

4

5. If revenues are insufficient to make such payments, we will increase the amount of the charges imposed on all retail customers by means of the true-up mechanism, which permits adjustment to the charges to be made at least semi-annually or more frequently if necessary.

6. The charges will continue to be imposed, collected, and adjusted on all existing and future retail customers of Kentucky Power Company until the Bonds have been repaid in full.

7. This process will be enforced by the Kentucky Public Service Commission and protected by a pledge by the Commonwealth of Kentucky and its agencies not to take or permit any action that impairs the value of the Cost Recovery Property or the rights of bondholders.

The illustration below depicts a general overview of how cost recovery charges are collected and applied compared to general rate charges issued by Kentucky Power Company.

 

The remainder of this prospectus provides more details about the Bonds, the issuing entity, the Financing Order and related legislation, the Kentucky Public Service Commission, the customers, the servicer, the legal contracts that will govern the transaction, the ratings of the Bonds, the underwriters, and other legal, tax, and ERISA considerations of which you should be aware. This prospectus also describes risk factors that may reduce the value of the collateral, alter the principal payment schedule, or otherwise impair the value of the Bonds.

 

5

PROSPECTUS SUMMARY OF TERMS

The following section is only a summary of selected information and does not provide you with all the information you will need to make your investment decision. To understand all of the terms of the offering of the Bonds, you should carefully read this entire prospectus. You should carefully consider the Risk Factors beginning on page 20 of this prospectus before you invest in the Bonds.

 

Securities offered:

$477,749,000 Series 2025 Senior Secured Recovery Bonds, scheduled to pay principal semi-annually and sequentially in accordance with the expected sinking fund schedule. Only the Bonds are being offered through this prospectus.

 

The issuing entity and its capital structure:

We are Kentucky Power Cost Recovery LLC, a Delaware limited liability company that was formed as a special purpose finance subsidiary of Kentucky Power Company. Kentucky Power Company is our sole member and owns all of our membership interests. We were formed to allow Kentucky Power Company to recover certain extraordinary costs by means of issuing the Bonds, as discussed below under “Use of Proceeds.”

 

We will purchase the Cost Recovery Property and issue the Bonds secured by that property. We will engage Kentucky Power Company to service the Cost Recovery Property and collect the charges. For more details, please see the section titled “Kentucky Power Cost Recovery LLC, the Issuing Entity” in this prospectus.

 

We will be capitalized with an upfront cash deposit by Kentucky Power Company of 0.5% of the principal amount of Bonds issued, which will be held in the capital subaccount.

 

Our address:

1645 Winchester Avenue Ashland, Kentucky 41101

 

Our telephone number:

(606) 929-1488

 

Federal income tax treatment of the issuing entity:

The Bonds will be debt of our parent, Kentucky Power Company, for federal income tax purposes. By making an investment in the Bonds, you agree to treat the Bonds as debt for federal income tax purposes. Please read “Material U.S. Federal Income Tax Consequences” in this prospectus.

 

Corporate financial reporting:

As required by the Financial Accounting Standards Board and the SEC Office of Chief Accountant governing corporate financial reporting for investor-owned utilities, the Bonds will be debt on the consolidated balance sheet of our parent, Kentucky Power Company, and the charges will be reported on its income statement.

 

Use of proceeds:

We will use the proceeds of the Bonds to acquire the Cost Recovery Property and pay the related expenses of the issuance.

 

Kentucky Power Company will use the proceeds of the sale of the Cost Recovery Property to us to pay off debts it incurred in connection with certain extraordinary costs. These costs have been approved by the Kentucky Public Service Commission as costs that may be recovered by Kentucky Power Company from its customers.

 

6

These extraordinary costs are described under “TRANSACTION OVERVIEW” and in Question 1 under “KEY QUESTIONS AND ANSWERS REGARDING THE BONDS AND THE TRUE-UP MECHANISM.”

 

Seller, Servicer and Depositor:

Our parent, Kentucky Power Company, is organized under Kentucky law to provide electricity generation, transmission and distribution services. Kentucky Power Company is an operating subsidiary of American Electric Power Company, Inc., referred to as “AEP.” AEP is an investor-owned public utility holding company based in Columbus, Ohio. Kentucky Power Company, acting as the “servicer,” will service the Cost Recovery Property under a servicing agreement with us. Please read “The Depositor, Seller, Initial Servicer and Sponsor” and “The Servicing Agreement” in this prospectus.

 

As of December 31, 2024, Kentucky Power Company provided transmission and distribution service of electric power to approximately 163,000 retail customers, covering a service territory of approximately 4,895 operational square miles in 20 counties, as shown below on the eastern edge of Kentucky. AEP is an investor-owned public utility holding company based in Columbus, Ohio. AEP’s over 16,000 employees operate and maintain the nation’s largest electricity transmission system and nearly 225,000 miles of distribution lines to deliver power to nearly 5.6 million retail customers in 11 states. AEP also is one of the nation’s largest electricity producers with approximately 29,000 megawatts of diverse generating capacity.

 

 

* Kentucky Power Company’s Service Territory in red.

 

Kentucky Power Company’s address:

1 Riverside Plaza, Columbus, Ohio 43215-2373

 

Kentucky Power Company’s phone number:

(614) 716-1000

 

Trustee:

U.S. Bank Trust Company, National Association, a national banking association. Please read “The Trustee” in this prospectus for a description of the trustee’s duties and responsibilities under the indenture.

 

7

Parties to transaction and flow of funds:

The following chart represents a general summary of the parties to the transactions and the flow of funds:

 

 

Security for the Bonds:

The Bonds are our obligation and secured only by our assets, consisting principally of the Cost Recovery Property.

 

The collateral securing the Bonds consists of:

 

•

the Cost Recovery Property, which is a present property right created under the Kentucky Utilities Act pursuant to the Financing Order and includes the right to impose, collect and adjust the charges from all current and future retail customers of Kentucky Power Company or its successor,

 

•

our rights under the statutory true-up mechanism to adjust the amount of the charges on all retail customers on a joint basis to ensure we have sufficient collections to pay the interest and scheduled principal of the Bonds in accordance with the sinking fund schedule; we refer to adjustments of the charges as the “true-up adjustments” or the “statutory true-up mechanism,”

 

•

our rights under the sale agreement pursuant to which we will acquire the Cost Recovery Property from Kentucky Power Company,

 

•

the guarantee of the Kentucky Public Service Commission to implement the statutory true-up mechanism,

 

•

the pledge by the Commonwealth of Kentucky not to impair the value of the Cost Recovery Property or the rights of bondholders,

 

•

our rights under the servicing agreement with Kentucky Power Company, which will bill and collect the charges on our behalf,

 

•

our rights under the intercreditor agreement and the administration agreement, and

 

•

the collection account and all related subaccounts into which all collected charges will be held, and all cash, instruments, investment property or other assets on deposit in those subaccounts, and all financial assets and securities entitlements carried therein or credited thereto.

 

8

Please read “Security for the Bonds” in this prospectus.

 

Cost Recovery Property:

The “Cost Recovery Property” consists of Kentucky Power Company’s rights and interests under the Financing Order that are transferred to us in a “true sale” pursuant to the sale agreement.

 

The Cost Recovery Property is a present property right that:

 

•

was created under the Kentucky Utilities Act and the Financing Order,

 

•

consists of the right to impose, collect, and adjust the charges on all existing and future retail customers on a joint basis,

 

•

generates revenues that depend upon the continued operation of our parent, Kentucky Power Company, or a successor as permitted and required by the Financing Order, to provide electricity generation, transmission and distribution services to retail customers and customer demand for those services, and

 

•

is protected by the Commonwealth of Kentucky’s pledge not to take or permit any action that impairs the value of the Cost Recovery Property or the rights of bondholders.

 

Please read “Review of Cost Recovery Property” in this prospectus.

 

Charges are imposed on a joint basis and are adjusted at least semi-annually or more frequently as necessary; charges are nonbypassable:

The Kentucky Utilities Act and the Financing Order mandate the imposition and collection of charges on a joint basis from all existing and future retail customers. The charges are applied to these customers individually and are adjusted and reallocated among all customers at least semi-annually or as necessary through the statutory true-up mechanism.

 

The charges are nonbypassable which means that no existing or future retail customer can avoid paying the charges. Currently, retail customers in Kentucky may not select an alternate electricity energy supplier. However, if a fundamental change in the regulation of public utilities were to be enacted in the Commonwealth and a retail customer did choose to purchase electricity from an electricity supplier other than Kentucky Power Company, the retail customer would still be required to pay the charges to Kentucky Power Company as part of the bill for supplying and distributing electricity. Please read “Risk Factors—Other Risks Associated with an Investment in the Bonds” in this prospectus.

 

Please read “Description of the Cost Recovery Property—Charge Rider; Charges,” “Kentucky Power Company’s Financing Order—Statutory True-Ups” and “The Servicing Agreement—True-Up Adjustment Process” in this prospectus.

 

Allocation of charges:

The charges are calculated on a percent of revenue basis according to a methodology approved in the Financing Order. Specifically, the interest and scheduled principal payments on the Bonds, along with certain of our costs and expenses, to be recovered in a given period,

 

9

referred to as the “Periodic Payment Requirement,” are first allocated on a percent of revenue basis among two groups of retail electric customers, referred to as “revenue classes,” consisting of (a) residential retail customers and (b) all other retail customers. The Periodic Payment Requirement, net of undercollections and overcollections from previous periods, that we are seeking to recover through the imposition of charges from each revenue class is then increased to account for the estimated amount of uncollectible charges and payment lags between billing and collection of charges during the period in which the charges will be in effect. The increased amounts allocated to each revenue class are collectively referred to as the Periodic Billing Requirement.

 

The Periodic Billing Requirement for each revenue class will then be further allocated among all customers within each class through application of the cost recovery charge to each customer’s bill. Specifically, the charge for each customer will be calculated by applying an adjustment factor to amounts billed for certain defined retail charges. The adjustment factor for each revenue class will be calculated by dividing the Periodic Billing Requirement allocated to each revenue class for a given period by the revenues expected to be collected during that period from the revenue class for the charges to which the adjustment factor will apply. Please read “Description of the Cost Recovery Property-Charge Rider; Charges” and “The Servicing Agreement-True-Up Adjustment Process” in this prospectus.

 

Please read “Kentucky Power Company’s Financing Order—Statutory True-Ups” in this prospectus, as well as the chart entitled “Parties to Transaction and Responsibilities,” “The Kentucky Utilities Act” and “Description of the Cost Recovery Property—Creation of Cost Recovery Property; Financing Order” in this prospectus.

 

No ceiling on level of charges and all charges are irrevocable:

There is no “ceiling,” “cap” or maximum on the amount of charges that may be imposed on retail customers to generate sufficient revenues to pay interest and principal on the Bonds and to pay certain of our related costs and expenses. This means that all existing or future, non-defaulting, retail customers may be required to pay higher charges if other retail customers move out of the service territory or default on their electricity bills, or the revenues expected to be collected from those customers are reduced or eliminated for any other reason, as discussed under “True-Up Adjustment Process” in this prospectus. The charges may also be reduced if Kentucky Power Company collects more revenue than necessary to make payments on the Bonds.

 

The Commission guarantees to adjust the charges as needed on future sales:

The Kentucky Public Service Commission guarantees that it will approve adjustments to the charges to make up for any shortfalls in collections or reduce any excess in collected charges. Please read “Kentucky Power Company’s Financing Order—Statutory True-Ups.”

 

10

The Commonwealth pledges never to impair bondholder rights:

The Commonwealth of Kentucky and its agencies, including the Kentucky Public Service Commission, are prohibited from taking or allowing any actions that could impair or reduce the value of the Cost Recovery Property securing the Bonds. This includes actions that could affect the rights or remedies of bondholders or impair the charges imposed on current and future customers. Unlike some states, Kentucky does not have a voter initiative or referendum process. For more details, please see “The Kentucky Utilities Act—Kentucky Power Company and Other Utilities May Securitize Qualified Costs” in this prospectus.

 

The obligations of the Commonwealth of Kentucky and the Kentucky Public Service Commission are direct, explicit, irrevocable and unconditional upon issuance of the Bonds. They are legally enforceable against the Commonwealth of Kentucky and the Kentucky Public Service Commission.

 

Please read “Description of the Cost Recovery Property-Charge Rider; Charges” and “The Servicing Agreement—True-Up Adjustment Process” in this prospectus.

 

Interest payments:

We will pay interest on the Bonds on each payment date, which will occur semi-annually, on the     th day of each     and    , and on the final maturity date. The first scheduled payment date is     , 2026. If any payment date is not a business day, payments scheduled to be made on such date will be made on the next succeeding business day.

 

Interest will accrue with respect to the Bonds on a 30/360 basis at an interest rate of     %.

 

Principal payments and payment sources:

We will make scheduled payments of principal on each payment date in accordance with the sinking fund schedule described in this prospectus under “DESCRIPTION OF THE BONDS – Principal Payments.”

 

Principal on the Bonds is only due upon the Final Maturity Date. An event of default occurs only if we do not pay the entire outstanding principal amount by the Final Maturity Date. No event of default will occur if we fail to repay the outstanding principal amount by the Scheduled Maturity Date or if we fail to make the full amount of any scheduled principal payment in accordance with the sinking fund schedule because we do not have sufficient collections to make any of those payments. In such circumstances, true-up adjustments to the charges would be made for subsequent periods and we would expect to collect sufficient revenues to pay the full scheduled principal repayments on the Bonds on subsequent Payment Dates, which would extend the weighted average life of your Bonds. See “DESCRIPTION OF THE BONDS – Payments on the Bonds,” and “—Events of Default; Rights upon Event of Default,” and “WEIGHTED AVERAGE LIFE AND YIELD CONSIDERATIONS FOR THE BONDS” in this prospectus.

 

11

The true-up mechanism will not be used to increase charges following an acceleration of the principal of the Bonds in connection with an event of default. See “RISK FACTORS – OTHER RISKS ASSOCIATED WITH AN INVESTMENT IN THE BONDS — Foreclosure of the trustee’s lien on the Cost Recovery Property for the Bonds might not be practical, and acceleration of the Bonds before maturity might have little practical effect.”

Scheduled Final Payment Date, Final Maturity Date and Weighted Average Life:

 

Tranche

Scheduled Final Payment Date

Final Maturity Date

Expected Weighted Average Life (years)

A

 

No optional redemption:

No optional redemption. Non-callable for the life of the Bonds.

 

Priority of distributions of charges received on future sales:

On each payment date for the Bonds, the trustee will allocate all charges collected during the six months preceding that payment date, together with funds on deposit in the issuing entity’s accounts to the payment, in the order of priority set forth below, of the following items:

 

1. the trustee’s fees, expenses and any outstanding indemnity amounts not to exceed in total $100,000 per year,

 

2. the servicing fee plus any unpaid servicing fees from prior payment dates,

 

3. the administration fee, and the fees of our independent manager, plus unpaid administration fees or independent manager fees from prior payment dates (or an allocable share of the administration fee and fees owed to our independent managers, if one or more series of bonds are issued by us),

 

4. all our other ordinary periodic operating expenses relating to the Bonds, such as accounting and audit fees, rating agency fees, legal fees and certain reimbursable costs of the administrator and the servicer,

 

5. the interest due on the Bonds, including any unpaid interest accrued during prior periods,

 

6. the principal then required to be paid on the final maturity of the Bonds, without regard to the sinking fund schedule,

 

7. the principal of the Bonds in accordance with the sinking fund schedule including any previously unpaid scheduled principal,

 

8. any remaining unpaid fees, expenses and indemnity amounts owed to the trustee,

 

9. any of our other unpaid operating expenses and any remaining amounts owed pursuant to the basic documents,

 

12

10. replenishment of any amounts used from the capital subaccount,

 

11. to Kentucky Power Company the return on invested capital then due and payable,

 

12. any remaining amounts to the excess funds subaccount for payment of amounts due on subsequent payment dates, and

 

13. after the Bonds have been repaid in full, any remaining amounts will be paid to us.

 

Credit ratings:

We expect the Bonds will receive credit ratings from two nationally recognized statistical rating organizations. Please read “Ratings for the Bonds” in this prospectus.

 

Credit enhancement

Credit enhancement for the Bonds, which is intended to protect you against losses or delays in scheduled payments on the Bonds, will be as follows:

 

•

The Kentucky Public Service Commission will approve adjustments to the charges, but only upon petition of the servicer, to make up for any shortfall, due to any reason, or reduce any excess in collected charges. We sometimes refer to these adjustments as the “true-up adjustments” or the “statutory true-up mechanism.” These adjustments will be made semiannually, and if determined necessary by the servicer, more frequently, and, beginning 12 months prior to the scheduled final payment date, quarterly, to ensure the expected recovery of amounts sufficient to timely provide all payments of debt service and other required amounts and charges in connection with the Bonds. Please read “Kentucky Power Company’s Financing Order—Statutory True-Ups” in this prospectus.

 

•

Collection Account—Under the indenture, the trustee will hold a collection account for the Bonds, divided into various subaccounts. The primary subaccounts for credit enhancement purposes are:

 

•

the general subaccount—the trustee will deposit into the general subaccount all charge collections remitted to it by the servicer; and

 

•

the excess funds subaccount—any excess amount of collected charges and investment earnings not released to us will be held in the excess funds subaccount.

 

Each of these subaccounts for the Bonds, in addition to any other subaccounts that may be created pursuant to the indenture, will be available to make payments on the Bonds on each payment date.

 

Minimum denomination:

$2,000, or integral multiples of $1,000 in excess thereof, except for one bond which may be of a smaller denomination.

 

Servicing compensation:

We will pay the servicer the servicing fee with respect to the Bonds on each Payment Date, plus reimbursement for its out-of-pocket costs for external accounting and legal services, subject to the adjustment mechanism described in the Financing Order. As long as Kentucky

 

13

Power Company or any affiliated entity acts as servicer, this servicing fee will be 0.05% of the initial principal balance of the Bonds on an annualized basis. If a successor servicer is appointed, the servicing fee may not exceed 0.60% of the initial principal balance of the Bonds on an annualized basis, unless the Kentucky Public Service Commission consents to a higher fee. For further information, please read “The Servicing Agreement—Servicing Compensation” in this prospectus.

 

ERISA considerations:

Employee benefit plans, plans or other arrangements that are subject to (i) ERISA or Section 4975 of the Internal Revenue Code or (ii) any federal, state, local or other law that is similar to the fiduciary responsibility provisions of Title I of ERISA or the prohibited transaction provisions of Title I of ERISA or Section 4975 of the Internal Revenue Code (“applicable similar law”) and investors acting on behalf of, or using assets of, such employee benefit plans, plans or arrangements may acquire the Bonds subject to specified conditions. The acquisition, holding or disposition of the Bonds could be treated as a direct or indirect prohibited transaction under ERISA and/or Section 4975 of the Internal Revenue Code or in the case employee benefit plans or arrangements subject to applicable similar law, could be treated as a violation of such applicable similar law. Accordingly, by purchasing and holding the Bonds, each investor that is or is acting on behalf of, or using assets of, such an employee benefit plan or arrangement subject to ERISA and/or Section 4975 of the Internal Revenue Code or applicable similar law will be deemed to certify that the purchase, holding and subsequent disposition of the Bonds will not constitute or result in a non-exempt prohibited transaction under ERISA or Section 4975 of the Internal Revenue Code, in the case of an employee benefit plan, plan or arrangement subject to applicable similar law, or a violation of applicable similar law. For further information, please read “ERISA Considerations” in this prospectus.

 

Expected settlement:

On or about    , 2025, settling flat. DTC, Clearstream and Euroclear.

 

Continuing disclosure: surveillance/internet-based information post issuance/dedicated web address:

AEP, on behalf of Kentucky Power Company, will establish a dedicated web address for the life of the Bonds. The basic documents and other information concerning the charges and security relating to the Bonds will be posted at such web address, which is currently located at    .

 

The trustee will make available to the bondholders regular reports prepared by the servicer containing information concerning us, the Cost Recovery Property and other related matters. Unless and until the Bonds are issued in definitive certificated form, the reports will be made available electronically on the trustee’s website to DTC and DTC participants, and to the beneficial owners of the Bonds. An independent public accountant will not examine, report, or opine upon these reports. Please read “Description of the Bonds—Reports to Bondholders” in this prospectus.

 

14

Additional Series:

If Kentucky Power Company has additional recoverable costs and the recovery of those costs is approved by the Kentucky Public Service Commission pursuant to a new financing order, we may issue Additional Series of Bonds which will be secured by new cost recovery property acquired from our parent. Additional Series will only be issued if the rating agencies rating the Bonds confirm that such ratings would not be negatively affected. Any new issuance would be offered pursuant to a separate registration statement or other offering document and may include terms and provisions that would be unique to that particular issuance. For additional information about the issuance of Additional Series, please see “Security for the Bonds — Issuance of Additional Bonds” and “Description of the Bonds – Conditions of Issuance of Additional Bonds and Acquisition of Additional Cost Recovery Property.”

 

Risk factors:

You should consider carefully the risk factors beginning on page 20 of this prospectus before you invest in the Bonds.

 

15

KEY QUESTIONS AND ANSWERS

REGARDING THE BONDS AND THE TRUE-UP MECHANISM

The following questions and answers are intended to briefly address certain questions regarding the Bonds. These questions and answers may not address all questions that may be important to you. Please refer to the more detailed information contained elsewhere in this prospectus and the documents referred to in this prospectus, which you should read carefully and in their entirety.

 

Q1:	What is the Collateral securing the Series 2025 Senior Secured Recovery Bonds?

 

A:	The Cost Recovery Property, the funds on deposit in the issuing entity’s collection account, and the issuing entity’s rights under the various transaction documents.

Payment Mechanics and Safeguards

 

Q2:	What is the source of repayment for the Bonds?

 

A:	The collection of charges imposed on future sales by Kentucky Power Company of electricity generation, transmission and distribution services and collected from all current and future retail customers of Kentucky Power Company.

 

Q3:	What does imposed on all retail customers on a joint basis mean?

 

A:

The charges are joint obligation of the entire current and future retail customer base of Kentucky Power Company. If certain customers default on their obligation to pay the charge billed to them for whatever reason, other customers will make up the difference through the true-up mechanism. Specifically, the Kentucky Utilities Act and the Financing Order allow us to periodically “true-up” (increase or decrease) the charges to ensure that there are enough revenues available to pay interest and scheduled principal on the Bonds. The Kentucky Public Service Commission guarantees the implementation of the true-up mechanism.

 

Q4:	What happens if, for any reason, electricity usage and, as a result, collection of the charges, is less than projected at any time over the life of the Bonds?

 

A:

If collections are less than projected, the charges will be increased pursuant to the true-up mechanism to a level sufficient to provide for the timely payment of interest on the Bonds and the repayment of the principal of the Bonds in accordance with the sinking fund schedule. See “The Servicing Agreement—True-Up Adjustment Process” in this prospectus.

 

Q5:	How often are true-up adjustments made?

 

A:

At least semi-annually, and quarterly, beginning 12 months prior to the scheduled final payment date of the Bonds. True-up adjustments may be made more frequently at any time, if determined to be necessary by Kentucky Power Company, acting as servicer. See “Kentucky Power Company’s Financing Order—Statutory True-Ups” in this prospectus.

 

Q6:	Is there any cap or ceiling on the amount of the charge for any retail customer?

 

A:	No. There is no “ceiling,” “cap” or maximum level of charges that may be imposed on all retail customers to meet the scheduled principal and interest payments on the Bonds.

 

16

Q7:	Is there a review process related to a true-up adjustment?

 

A:

Yes. The Kentucky Public Service Commission is allowed to review true-up adjustments as part of its guarantee to implement the true-up mechanism. However, the review is strictly a mathematical review, limited to determining whether there is any error in the application of the true-up mechanism. The Kentucky Public Service Commission does not have the ability to deny an adjustment under any other circumstance. In addition, true-up adjustments are deemed approved if the Kentucky Public Service Commission takes no action within ten days after the date of a true-up adjustment filing. See “The Servicing Agreement—True-Up Adjustment Process” in this prospectus.

Legal Protections

 

Q8:	How are the charges collected by Kentucky Power Company safeguarded for the benefit of the bondholders?

 

A:

Collected charges are transferred to the trustee within two business days after receipt. The trustee holds the funds in a segregated trust account for the benefit of the bondholders, and the collections are not commingled with other funds of Kentucky Power Company or any other entity after being transferred to that account.

 

Q9:	Are the Bonds protected from a bankruptcy filing by Kentucky Power Company?

 

A:

Yes. We, as the issuing entity of the Bonds, are a legally separate finance subsidiary of Kentucky Power Company that is ring-fenced and bankruptcy-remote from the creditors of Kentucky Power Company. Independent managers on our board have the right to prevent us from making a voluntary bankruptcy filing for so long as the Bonds are outstanding. In addition, we acquired the Cost Recovery Property from Kentucky Power Company in a true-sale transaction for fair value, as discussed in “How a Bankruptcy May Affect Your Investment” in this prospectus. These measures mitigate our credit exposure to Kentucky Power Company and the risk that our assets would be consolidated with the assets and liabilities of Kentucky Power Company in the event it becomes subject to bankruptcy proceedings.

 

Q10:	How are bondholders affected by a merger or acquisition of Kentucky Power Company?

 

A:

Any successor by sale or merger with Kentucky Power Company must perform all obligations of, and will have the same rights under the Financing Order as, Kentucky Power Company. This means that any successor of Kentucky Power Company will continue to impose, collect, and adjust charges on future sales of electricity generation, transmission and distribution services to all existing and future retail customers.

 

Q11:	How does the pledge provided by the Commonwealth of Kentucky benefit bondholders?

 

A:

The Commonwealth’s pledge is a guarantee of regulatory action for the benefit of bondholders. The irrevocable Financing Order authorized by the Kentucky Utilities Act creates this guarantee. In addition, the Commonwealth has pledged to never impair the rights of the bondholders or impair the value of the Cost Recovery Property in any manner.

 

Q12:	May the Financing Order be rescinded or altered, or may the Kentucky Public Service Commission fail to implement the true-up mechanism?

 

A:

No. Once the Bonds are issued, the Kentucky Utilities Act provides that the Financing Order, and all obligations specified therein, are irrevocable. See “The Kentucky Utilities Act—Kentucky Power Company and Other Utilities May Finance Qualified Costs” and “The Servicing Agreement—True-Up Adjustment Process” in this prospectus.

 

17

Q13:	May the Kentucky Utilities Act be repealed or altered in a manner that will impair the value of the Cost Recovery Property or prevent timely repayment of the Bonds?

 

A:

No. The Commonwealth of Kentucky has pledged in the Kentucky Utilities Act that it will not take or permit any action that would impair the value of the Cost Recovery Property or the rights and remedies of the holders of the Bonds. See “The Kentucky Utilities Act—Kentucky Power Company and Other Utilities May Finance Qualified Costs” and “Risk Factors—Risks Associated with Potential Judicial, Legislative or Regulatory Actions—Future state legislative action might attempt to reduce the value of your investment in the Bonds” in this prospectus.

 

Q14:	Are the Bonds protected from a change in legislation or from regulatory action by the Kentucky Public Service Commission?

 

A:

Yes. The Kentucky Utilities Act includes a pledge that the Commonwealth of Kentucky and its agencies, including the Kentucky Public Service Commission, will not take any action that impairs the value of the Cost Recovery Property for so long as the Bonds are outstanding. Further, any action to reduce the value of the Cost Recovery Property may require just compensation as a taking under the Kentucky Constitution and the U.S. Constitution.

See Question and Answer 15 below and “THE KENTUCKY UTILITIES ACT—Kentucky Power Company and Other Utilities May Finance Eligible Costs—Constitutional Matters” in this prospectus.

 

Q15:	Do bondholders have protection under the Constitution of the United States of America and the Constitution of the Commonwealth of Kentucky?

 

A:

Yes. The Commonwealth’s pledge (i) creates a binding contractual obligation on the Commonwealth for purposes of the Contract Clause of the United States Constitution, and (ii) provides a basis upon which the holders of Bonds could challenge any action by the Commonwealth of Kentucky, including the rescission or amendment of the Financing Order, that violates the state pledge in a manner that would substantially impair the value of the Cost Recovery Property or substantially reduce, alter or impair the value of the charges, prior to the time that the Bonds are paid and performed in full, unless there is a judicial finding that the 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 Kentucky legislature that adversely affects the Cost Recovery Property or the ability to collect the charges may be considered a “taking” under the United States or Kentucky Constitutions.

See “Risk Factors—Risks Associated with Potential Judicial, Legislative or Regulatory Actions—Future state legislative action might attempt to reduce the value of your investment in the Bonds” in this prospectus.

 

Q16:	May retail customers avoid paying the charges if they switch electric generation service suppliers?

 

A:

No. Kentucky Power Company’s retail customers cannot currently elect to purchase electricity from an alternative supplier who is not Kentucky Power Company. Further, Kentucky Power Company is the only utility that is authorized to distribute electricity to retail customers in its service territory and it would continue to impose the charges on its retail customers along with transmission and distribution services charges even if the electricity it is transmitting and distributing were supplied by another supplier.

See “Kentucky Power Company’s Financing Order—Collection of Charges” and “The Kentucky Utilities Act—Kentucky Power Company and Other Utilities May Securitize Qualified Costs” in this prospectus.

 

18

Q17:	What happens if, for any reason, electricity usage and, as a result, collection of the charges, is less than projected at any time over the life of the Bonds?

 

A:

The charges will be increased. If collections are less than projected, the charges will be increased pursuant to the true-up mechanism to a level sufficient to provide for the timely payment of interest on the Bonds and the repayment of the principal of the Bonds in accordance with the sinking fund schedule. See “The Servicing Agreement—True-Up Adjustment Process” in this prospectus.

 

Q18:	If of Kentucky Power Company’s private sector retail customer base were to shrink significantly or otherwise fail to pay the charges, what would happen to the Bonds?

 

A:

In such an unlikely event, the true-up mechanism would increase the charges on the remaining retail customers. This means that the Commonwealth of Kentucky and other governmental entities, agencies, authorities, and instrumentalities of the Commonwealth, in their capacity as retail electric customers, would be obligated to pay higher charges to make up for the defaulting or departing customers because these governmental entities cannot leave Kentucky Power Company’s service territory.

The diagram below depicts the operation of the Kentucky Public Service Commission guaranteed true-up mechanism if this were to occur. Even though there would be a direct claim on these governmental entities and agencies, in their capacity as retail electric customers, there is no assurance that the Commonwealth of Kentucky and other government entities or agencies would pay such charges.

 

 

Other Pertinent Items

 

Q19:	What percentage of the total customer bill does the charge represent?

 

A:	The initial charge is estimated to represent approximately   % of the total bill received by a 1,000 kWh residential retail customer as of      , 2025.

 

Q20:	Are the Bonds ERISA eligible?

 

A:	Yes, see “ERISA Considerations” in this prospectus.

 

Q21:	Will the Bonds be classified as debt for tax purposes?

 

A:	Yes, see “MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES” in this prospectus.

 

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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 Bonds.

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

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

 

•

the Cost Recovery Property securing the Bonds, including the right to impose, bill, charge, collect and receive charges from all existing and future retail customers of Kentucky Power Company and our rights under the Financing Order to utilize the statutory true-up mechanism to adjust those charges;

 

•

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

 

•

our rights under various contracts we describe in this prospectus;

 

•

our right to compel the servicer to file for and obtain true-up adjustments; and

 

•

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

See “Security for the Bonds” in this prospectus.

The billing and collection of the charges which will be our sole source of funds to make interest and principal payments on the Bonds depend upon the continued operation of Kentucky Power Company or its successor in supplying and distributing electricity to its retail customers. Any interruption in that business could adversely affect the timing of payments on the Bonds.

The Bonds are not a charge on the full faith and credit or taxing power of the Commonwealth of Kentucky or any governmental agency or instrumentality, nor will the Bonds be insured or guaranteed by Kentucky Power Company, including in its capacity as the sponsor, depositor, seller or servicer, or by its parent, AEP, any of their respective affiliates (other than us), the trustee or by any other person or entity. Thus, you must rely for payment of the Bonds solely upon the Kentucky Utilities Act, state and federal constitutional rights to enforce the Kentucky Utilities Act, the irrevocable Financing Order, collection of the charges and funds on deposit in the related accounts held by the trustee. The Bonds will be nonrecourse obligations, secured only by the Cost Recovery Property and other assets described above. If the charges collected from the customers of Kentucky Power Company, as periodically adjusted by means of the true-up mechanism, are not sufficient to make payments or there are delays in those collections, you may experience material payment delays or incur a loss on your investment in the Bonds. Our organizational documents restrict our right to acquire other assets unrelated to the transactions described in this prospectus. Please read “Kentucky Power Cost Recovery LLC, The Issuing Entity.”

RISKS ASSOCIATED WITH POTENTIAL JUDICIAL, LEGISLATIVE OR REGULATORY ACTIONS

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

Neither we nor Kentucky Power Company, nor any affiliate, successor or assignee will indemnify you for any changes in the law, including any federal pre-emption or repeal or amendment of the Kentucky Utilities Act, that may affect the value of your Bonds. Kentucky Power Company will agree in the sale agreement pursuant to which it will transfer the Cost Recovery Property to us to institute any legal or substantive action or proceeding as may be reasonably necessary to block or overturn any attempts to cause a repeal, modification or amendment to the Kentucky Utilities Act that would be materially adverse to us, the trustee or the bondholders. However, we cannot assure you that Kentucky Power Company would be able to take any such action or that such action

 

20

would be successful. Although Kentucky Power Company or any successor seller is required to indemnify us if legal action based on the law in effect at the time of the issuance of the Bonds invalidates the Cost Recovery Property, such indemnification obligations do not apply for any changes in law after the date the 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. See “The Sale Agreement—Seller Representations and Warranties” and “The Servicing Agreement—Servicing Standards and Covenants” in this prospectus.

Future judicial action could reduce the value of your investment in the Bonds.

The Cost Recovery Property securing the Bonds is the creation of the Kentucky Utilities Act and the Financing Order that has been issued by the Kentucky Public Service Commission to Kentucky Power Company. There is uncertainty associated with investing in Bonds payable from an asset whose existence depends on legislation because there is limited judicial or regulatory experience implementing and interpreting the legislation. Because the Cost Recovery Property is a creation of the Kentucky Utilities Act, any judicial determination affecting the validity of or interpreting the Kentucky Utilities Act, the Cost Recovery Property or our ability to make payments on the Bonds might have an adverse effect on the Bonds. The Kentucky Utilities Act might be directly contested in courts or otherwise become the subject of litigation. In addition, the Financing Order or any provision thereof might be directly contested in courts or otherwise become the subject of litigation. If any provisions of the Kentucky Utilities Act are invalidated, the Financing Order might also be invalidated.

Other states have passed laws permitting the securitization of electric utility costs similar to the Kentucky Utilities Act. Some of the laws that are similar to the Kentucky Utilities Act have been challenged by judicial actions or utility commission proceedings. To date, none of these challenges has succeeded, but future challenges might be made. An unfavorable decision regarding another state’s law would not automatically invalidate the Kentucky Utilities Act or the Financing Order, but it might provoke a challenge to the Kentucky Utilities Act, establish a legal precedent for a successful challenge or heighten awareness of the political and other risks of the Bonds, and in that way may limit the liquidity and value of the Bonds. Therefore, legal activity in other states may indirectly affect the value of your investment in the Bonds.

If an invalidation of any relevant underlying legislative provision or financing order provision were to result from such litigation, you might lose some or all of your investment or you might experience delays in recovering your investment.

Future state legislative action might attempt to reduce the value of your investment in the Bonds.

Despite its pledge in the Kentucky Utilities Act not to take or permit certain actions that would impair the value of the Cost Recovery Property or the charges, the Kentucky legislature might attempt to repeal or amend the Kentucky Utilities Act in a manner that limits or alters the Cost Recovery Property so as to reduce its value. For a description of the Commonwealth’s pledge, please read “The Kentucky Utilities Act—Kentucky Power Company and Other Utilities May Securitize Qualified Costs—State Pledge.” It might be possible for the Kentucky legislature to repeal or amend the Kentucky Utilities Act notwithstanding the Commonwealth’s pledge if the legislature 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 life of the 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 Bonds.

If an action of the Kentucky legislature adversely affecting the Cost Recovery Property or the ability to collect charges were considered a “taking” under the United States or Kentucky Constitutions, the Commonwealth of Kentucky might be obligated to pay compensation for 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 Bonds or to offset interest lost pending such recovery.

 

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

The enforcement of any rights against the Commonwealth of Kentucky or the Kentucky Public Service Commission under the Commonwealth’s pledge 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 Kentucky. 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 Commonwealth of Kentucky or the Kentucky Public Service Commission may be sued.

The Kentucky Public Service Commission might attempt to take actions that could reduce the value of your investment in the Bonds.

The Kentucky Utilities Act provides that a financing order is irrevocable and that the Kentucky Public Service Commission may not directly or indirectly, by any subsequent action, rescind or amend a financing order or reduce or impair the charges authorized under a financing order, except for the true-up adjustments to the charges. However, the Kentucky Public Service Commission retains the power to adopt, revise or rescind rules or regulations affecting Kentucky Power Company. The Kentucky Public Service Commission also retains the power to interpret the Financing Order granted to Kentucky Power Company, 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 Kentucky Public Service Commission might adversely affect the ability of the servicer to collect the charges in full and on a timely basis, and, as a result, the amortization of the Bonds and their weighted average life.

The servicer is required to file with the Kentucky Public Service Commission, on our behalf, certain adjustments of the charges. Please read “Kentucky Power Company’s Financing Order—Statutory True-Ups” and “The Servicing Agreement—True-Up Adjustment Process.” True-up adjustment procedures have been challenged in the past and 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 Bonds. Also, any litigation, as well being costly and time-consuming, might materially delay charge collections due to delayed implementation of true-up adjustments and might result in missing payments or payment delays and a lengthened weighted average life of the Bonds.

The servicer may not fulfill, or may not be successful in fulfilling, its obligations to protect bondholders from actions by the Kentucky Public Service Commission or the Commonwealth of Kentucky.

The servicer will agree in the servicing agreement to take any action necessary to compel performance by the Kentucky Public Service Commission and the Commonwealth of Kentucky of their obligations or duties under the Kentucky Utilities Act or the Financing Order, including any actions reasonably necessary to block or overturn attempts to repeal or modify such Act or Financing Order. The servicer, however, may not be able to take those actions, or may be unsuccessful in its attempts to do so, for a number of reasons, including legal or regulatory restrictions, financial constraints and practical difficulties in successfully challenging any legislative enactment or constitutional amendment. Any such failure to successfully compel performance by the Kentucky Public Service Commission or the Commonwealth of Kentucky could negatively affect bondholders’ rights and result in a loss of their investment.

A municipal entity might assert the right to acquire portions of Kentucky Power Company’s electric distribution facilities and avoid payment of the charges.

Kentucky law may authorize certain local municipalities to seek to acquire portions of Kentucky Power Company’s electric distribution facilities through the power of eminent domain for use as part of

 

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municipally-owned utility systems. Although there are no recorded cases in Kentucky indicating that the power of eminent domain has been used by municipalities in Kentucky in recent times to acquire electric distribution systems, there can be no assurance that one or more municipalities will not seek to acquire some or all of Kentucky Power Company’s electric distribution facilities while Bonds remain outstanding. The Kentucky Utilities Act specifies that charges approved by a Kentucky Public Service Commission order shall be collected by an electric utility as well as its “successors.” In the servicing agreement, Kentucky Power Company will covenant to assert in an appropriate forum that any municipality that acquires any portion of Kentucky Power Company’s electric distribution facilities must be treated as a successor to Kentucky Power Company under the Kentucky Utilities Act and the Financing Order and that retail customers in such municipalities remain responsible for payment of charges. However, the involved municipality might assert that it should not be treated as a successor to Kentucky Power Company for these purposes and that its distribution customers are not responsible for payment of charges. In any such cases, there can be no assurance that the charges will be collected from customers of municipally-owned utilities who were formerly customers of Kentucky Power Company. Even if the municipally-owned utility acquiring Kentucky Power Company’s utility plant is deemed a successor to Kentucky Power Company for purposed of the Kentucky Utilities Act, the municipally-owned utility may assert that it is not bound by the Kentucky Utilities Act because municipally-owned electric utilities are not subject to the Kentucky Public Service Commission’s jurisdiction, including tariffs filed by Kentucky Power Company with the Kentucky Public Service Commission, or because the legal obligations imposed by the Financing Order do not follow the assets obtained through condemnation. Any decrease in the retail customer base from which charges are collected might result in missing payments or payment delays and lengthened weighted average life of the Bonds.

SERVICING RISKS

Inaccurate forecasting of, or changes in, revenue or unanticipated delinquencies or write offs might reduce scheduled payments on the Bonds.

The cost recovery charges are generally assessed based on forecasted revenues, which are based on forecasted rates and forecasted customer usage, which includes both kilowatts demanded and kilowatt-hours of electricity consumed by retail customers. The amount and the rate of charge collections will depend in part on actual electricity usage and the amount of collections and write-offs for each revenue class. If the servicer inaccurately forecasts revenues or customer delinquency or charge-offs when setting or adjusting the cost recovery charges or if the Kentucky Public Service Commission subsequently decreases the rates and charges that make up Kentucky Power Company’s revenues, or if the effectiveness of the adjustments is delayed for any reason, there could be a shortfall or material delay in collections of the cost recovery charge, which might result in missed or delayed payments of principal and interest and lengthened weighted average life of the Bonds. Please read “Kentucky Power Company’s Financing Order—Statutory True-Ups” and “The Servicing Agreement—True-Up Adjustment Process.”

Kentucky Power Company’s revenue forecast is developed by applying the load forecast for each revenue 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 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 Kentucky Power Company’s billing system. While Kentucky Power Company monitors the accuracy of its revenue 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 revenue by the servicer might result from, among other things:

 

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unanticipated weather or economic conditions, resulting in less revenue than forecast;

 

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general economic conditions being worse than expected, causing retail customers to leave Kentucky Power Company or reduce the revenue from such customers;

 

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the occurrence of a natural disaster, such as extreme weather, an act of terrorism, cyber-attacks or other catastrophic events, including pandemics, unexpectedly disrupting electrical services and reducing revenues and demand;

 

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unanticipated changes in the market structure of the electric industry;

 

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customers accounting for a significant portion of Kentucky Power Company’s revenues or sales ceasing to do business or leaving the service territory;

 

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customers consuming less electricity than anticipated because of increased energy prices, unanticipated increases in conservation efforts, economic conditions or unanticipated increases in electric usage efficiency;

 

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unanticipated decreases in Kentucky Power Company’s other rates and charges subject to the jurisdiction of the Kentucky Public Service Commission that make up Kentucky Power Company’s retail revenue;

 

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differences or changes in forecasting methodology; or

 

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customers unexpectedly switching to alternative sources of energy, including self-generation of electric power.

Inaccurate forecasting of delinquency or charge-off rates by the servicer might result also from, among other things:

 

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unexpected deterioration of the economy or the unanticipated declaration of a moratorium on terminating electric service to customers in the event of extreme weather, other natural disaster or other catastrophic event, any of which would cause greater delinquencies or charge-offs than expected or force Kentucky Power Company to grant additional payment relief to more customers; or

 

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any unanticipated change in law that makes it more difficult for Kentucky Power Company to terminate service to nonpaying customers or that requires Kentucky Power Company to apply more lenient credit standards in accepting retail customers.

Your investment in the Bonds depends on Kentucky Power Company or its successor or assignee, acting as servicer of the Cost Recovery Property.

Kentucky Power Company, as servicer, will be responsible for, among other things, calculating, billing and collecting the cost recovery charges from retail customers, submitting requests to the Kentucky Public Service Commission to adjust these charges, monitoring the collateral for the Bonds and taking certain actions in the event of non-payment by a retail customers. The trustee’s receipt of collections in respect of the charges, which will be used to make payments on 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 charge billings and collections, together with the Kentucky Public Service Commission regulations, 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 collections for any reason, then the servicer’s payments to the trustee in respect of the charges might be delayed or reduced. In that event, our payments on the Bonds might be delayed or reduced.

If we replace Kentucky Power Company as the servicer, we may experience difficulties finding and using a replacement servicer.

Under certain circumstances, subject to regulatory and contractual limits, Kentucky Power Company may resign as servicer, or the trustee, the Kentucky Public Service Commission or certain bondholders may remove Kentucky Power Company as servicer. See “The Servicing Agreement—Matters Regarding the Servicer” and “The Servicing Agreement—Rights Upon a Servicer Default” in this prospectus. If Kentucky Power Company ceases to service the Cost Recovery Property, it might be difficult to find a successor servicer. Also, any

 

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successor servicer might have less experience and ability than Kentucky Power Company and might experience difficulties in collecting charges and determining appropriate adjustments to the charges and billing and/or payment arrangements may change, resulting in delays or disruptions of collections. A successor servicer might not be willing to perform other than for fees higher than those approved in the Financing Order and might charge fees that, while permitted under the Financing Order, are higher than the fees paid to Kentucky Power Company as 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 United States 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.

Kentucky Power Company has entered into the KPCo Receivables Purchase Agreement and the corresponding KPCo Receivables Agency Agreement, and may enter in the future, financing arrangements involving the sale of its accounts receivable. With respect to the KPCo Receivables Purchase Agreement, such agreement will, upon the issuance of the Bonds, be subject to the intercreditor agreement described under “KENTUCKY POWER COST RECOVERY LLC, THE ISSUING ENTITY–Intercreditor Agreement.” Kentucky Power Company 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 receivable, Kentucky Power Company and the other parties to such arrangement will enter into an amendment to the existing 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 charges from any receivables or other assets pledged or sold under such arrangement. Although the charges are and will not be subject to such receivables financings, the charges and accounts receivable are owed by the same pool of customers 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, the intercreditor agreement provides, and each future intercreditor agreement must also provide, that, in the event the trustee has the right (acting at the written direction of the holders of a majority in principal amount of the Bonds) to replace Kentucky Power Company as servicer or the investors under other receivables financings have the right to replace Kentucky Power Company as collection agent for such financing, the trustee and the investors’ agent will act jointly in the exercise of such rights and neither party will be entitled to replace Kentucky Power Company 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 Bonds). The Intercreditor Agreement, or any similar agreement executed after the issuance of the Bonds, may therefore make it more difficult for the trustee to replace Kentucky Power Company following a servicer default. Conversely, if a default were to occur under the KPCo Receivables Agency Agreement or similar agreement executed by Kentucky Power Company in the future, such a default may increase the possibility of Kentucky Power Company being replaced as servicer under the servicing agreement, even if Kentucky Power Company is not in default under the servicing agreement.

Changes to billing and collection practices might reduce the value of your investment in the Bonds.

The Financing Order specifies the methodology for determining the amount of the charges we may impose. The servicer may not change this methodology without approval from the Kentucky Public Service Commission. However, the servicer may set its own billing and collection arrangements with retail customers from whom it collects the charges directly, provided that these arrangements comply with the Kentucky Public Service Commission’s customer safeguards and the provisions of the servicing agreement. For example, to recover part of an outstanding bill, the servicer may agree to extend a retail customer’s payment schedule or to write off the remaining portion of the bill, including the charges. Also, the servicer may change billing and collection practices, which might adversely impact the timing and amount of retail customer payments and might reduce charge collections, thereby limiting our ability to make scheduled payments on the Bonds until any resulting

 

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undercollections can be trued-up and recovered from other retail customers. Separately, the Kentucky Public Service 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 charges and adversely affect the value of your investment in the Bonds.

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

Under certain circumstances, the servicer may terminate transmission and distribution service to a retail customer for non-payment of the charges under the applicable rules of the Kentucky Public Service Commission. Nonetheless, Kentucky statutory requirements and the rules and regulations of the Kentucky Public Service Commission, which may change from time to time, regulate and control the right to disconnect service. To the extent these retail customers do not pay for their electric service, the servicer will not be able to collect charges from them.

Future adjustments to charges by revenue class might result in insufficient collections.

The customers who pay the charges are divided into revenue classes. Charges will be allocated among revenue classes and assessed in accordance with the formula specified in the Financing Order. A shortfall in collections of charges in one revenue class may be corrected by making adjustments to the charges payable by that revenue class and any other revenue class. If enough customers in a class fail to pay the charges or cease to be customers, the servicer might have to substantially increase the charges for the remaining customers in that revenue class and for the other revenue classes. These increases could lead to further unanticipated failures by the remaining customers to pay the charges, thereby increasing the risk of a shortfall in funds to pay the Bonds.

STORM RELATED RISK

Storm damage to Kentucky Power Company’s operations could impair payment of the Bonds.

Kentucky Power Company’s operations could be impacted by extreme weather, including flooding, wind storms or ice storms. Transmission and/or distribution and generation facilities could be damaged or destroyed and usage of electricity could be interrupted temporarily, reducing charge collections. There could be longer-lasting weather-related adverse effects on residential and commercial development and economic activity among Kentucky Power Company’s customers, which could cause the reduction in charge collections to be greater than expected. Legislative action adverse to the bondholders might be taken in response, and such legislation, if challenged as a violation of the state pledge, might be defended on the basis of public necessity. Please read “Risk Factors—Risks Associated with Potential Judicial, Legislative or Regulatory Actions—Future state legislative action might attempt to reduce the value of your investment in the Bonds” in this prospectus.

RISKS ASSOCIATED WITH POTENTIAL BANKRUPTCY PROCEEDINGS OF THE SELLER OR THE SERVICER

For a more detailed discussion of the following bankruptcy risks, please read “How a Bankruptcy May Affect Your Investment.”

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

The servicer will be required to remit collections to the trustee within two business days of receipt. The servicer will not segregate the charges from the other amounts it collects from retail customers or its general funds. The charges will be segregated only after the servicer remits them to the trustee. Despite this requirement,

 

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the servicer might fail to pay the full amount of the 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 charge collections available to make payments on the Bonds.

The Kentucky Utilities Act provides that the priority of a lien and security interest perfected in Cost Recovery Property is not impaired by the commingling of the funds arising from the charges with any other funds. In a bankruptcy of the servicer, however, a bankruptcy court might rule that federal bankruptcy law takes precedence over the Kentucky Utilities Act and might decline to recognize our right to the charge collections that are commingled with other funds of the servicer as of the date of bankruptcy. If so, the charge collections held by the servicer as of the date of bankruptcy would not be available to pay amounts owing on the Bonds. In this case, we would have only a general unsecured claim against the servicer for those collections. This decision could cause material delays in payments of principal or interest, or losses, on your Bonds and could materially reduce the value of your investment in the Bonds.

The bankruptcy of Kentucky Power Company or any successor seller might result in losses or delays in payments on the Bonds.

The Kentucky Utilities Act and the Financing Order provide that as a matter of Kentucky 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 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 charges that retail customers do not yet owe any amounts to seller,

 

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upon the transfer to us, the rights will become the Cost Recovery Property, which constitutes a present property right, even though the imposition and collection of charges depend on further acts that have not yet occurred, and

 

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a transfer of the Cost 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 Cost Recovery Property and not a pledge of the Cost Recovery Property to secure a financing by the seller.

These provisions are important to maintaining payments on the Bonds in accordance with their terms during any bankruptcy of Kentucky Power Company. In addition, the transaction has been structured with the objective of keeping us legally separate from Kentucky Power Company and its affiliates in the event of a bankruptcy of Kentucky Power Company or any such affiliates.

A bankruptcy court generally follows state property law on issues such as those addressed by the state law provisions described above. However, a bankruptcy court does not follow state law if it determines that the state law is contrary to a paramount federal bankruptcy policy or interest. If a bankruptcy court in a Kentucky Power Company 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 Bonds might be similar to the treatment you would receive in a Kentucky Power Company bankruptcy if the Bonds had been issued directly by Kentucky Power Company. A decision by the bankruptcy court that, despite our separateness from Kentucky Power Company, our assets and liabilities and those of Kentucky Power Company should be consolidated would have a similar effect on you as a bondholder.

We have taken steps together with Kentucky Power Company, 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 Kentucky Power Company or an affiliate. Nonetheless, these steps might not be completely effective, and thus if Kentucky Power Company or its affiliate were to become a debtor in a bankruptcy case, a court might order that our assets and liabilities be

 

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consolidated with those of Kentucky Power Company or such affiliate. This might cause material delays in payment of, or losses on, your Bonds and might materially reduce the value of your investment in the Bonds. For example:

 

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

 

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the bankruptcy court might order the trustee to exchange the Cost Recovery Property for other property of lower value,

 

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tax or other government liens on Kentucky Power Company’s property might have priority over the trustee’s lien and might be paid from collected charges before payments on the Bonds,

 

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the trustee’s lien might not be properly perfected in the collected Cost Recovery Property collections prior to or as of the date of Kentucky Power Company’s bankruptcy, with the result that the Bonds would represent only general unsecured claims against Kentucky Power Company,

 

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

 

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we and Kentucky Power Company might be relieved of any obligation to make any payments on the 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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Kentucky Power Company might be able to alter the terms of the Bonds as part of its plan of reorganization,

 

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

 

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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 Kentucky Power Company that may be difficult to prove or, if proven, to collect in full.

Furthermore, if Kentucky Power Company enters bankruptcy, it might be permitted to stop acting as servicer, and it may be difficult to find a third party to act as servicer. The failure of the servicer to perform its duties or the inability to find a successor servicer might cause payment delays or losses on the Bonds. Also, the mere fact of a servicer or seller bankruptcy might have an adverse effect on the resale market for the Bonds and on their value.

The sale of the Cost Recovery Property might be construed as a financing and not a sale in a case of Kentucky Power Company’s bankruptcy which might delay or limit payments on the Bonds.

The Kentucky Utilities Act provides that the characterization of a transfer of Cost 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 Kentucky Power Company will treat the transaction as a sale under applicable law, although for financial reporting and income and franchise tax purposes the transaction is intended to be treated as a financing. In the event of a bankruptcy of Kentucky Power Company, a party in interest in the bankruptcy might assert that the sale of the Cost 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 Kentucky Power Company in the bankruptcy proceedings, although a court might

 

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determine that we only have an unsecured claim against Kentucky Power Company. Even if we had a security interest in the Cost Recovery Property, we would not likely have access to the related 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 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 related charge collections and therefore the amount and timing of funds available to us to pay the bondholders.

If the servicer enters bankruptcy proceedings, the remittance of 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 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 the 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. In such a 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 charges would be increased through the statutory true-up mechanism to recover such amount.

Claims against Kentucky Power Company or any successor seller 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 related agreements would be unsecured claims and would be adjudicated 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 the seller might challenge the enforceability of the indemnity provisions in a 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 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 the seller.

The bankruptcy of Kentucky Power Company or any successor seller might limit the remedies available to the trustee.

Upon an event of default for the Bonds under the indenture, the Kentucky Utilities Act permits the trustee to enforce the security interest in the Cost Recovery Property in accordance with the terms of the indenture. In this capacity, the trustee is permitted to request the Kentucky Public Service Commission to order the sequestration and payment to bondholders of all revenues arising with respect to the Cost Recovery Property. There can be no assurance, however, that the Kentucky Public Service Commission would issue this order after a Kentucky Power Company 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 Kentucky Public Service Commission, and an order requiring an accounting and segregation of the revenues arising from the Cost Recovery Property. There can be no assurance that a court would grant either order.

 

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OTHER RISKS ASSOCIATED WITH AN INVESTMENT IN THE BONDS

Foreclosure of the trustee’s lien on the Cost Recovery Property for the Bonds might not be practical, and acceleration of the Bonds before maturity might have little practical effect.

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

Kentucky Power Company’s indemnification obligations under the sale and servicing agreements are limited and might not be sufficient to protect your investment in the Bonds.

Kentucky Power Company is obligated under the sale agreement to indemnify us and the trustee, for itself and on behalf of the bondholders, only in specified circumstances and will not be obligated to repurchase any Cost Recovery Property in the event of a breach of any of its representations, warranties or covenants regarding the Cost Recovery Property. Similarly, Kentucky Power Company is obligated under the servicing agreement to indemnify us and the trustee, for itself and on behalf of the bondholders, and the Kentucky Public Service Commission only in specified circumstances. Please read “The Sale Agreement” and “The Servicing Agreement.”

Neither the trustee nor the bondholders will have the right to accelerate payments on the Bonds as a result of a breach under the sale agreement or servicing agreement, absent an event of default under the indenture relating to the Bonds as described in “Description of the Bonds—Events of Default; Rights Upon Event of Default.” Furthermore, Kentucky Power Company might not have sufficient funds available to satisfy its indemnification obligations under these agreements, and the amount of any indemnification paid by Kentucky Power Company might not be sufficient for you to recover all of your investment in the Bonds. In addition, if Kentucky Power Company becomes obligated to indemnify the bondholders, the then-current ratings on the Bonds will likely be downgraded as a result of the circumstances causing the breach and the fact that the bondholders will be unsecured creditors of Kentucky Power Company with respect to any of these indemnification amounts. Kentucky Power Company 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 Bonds, or for any consequential damages, including any loss of market value of the Bonds resulting from a default or a downgrade of the ratings of the Bonds. Please read “The Sale Agreement—Seller Representations and Warranties” and “—Indemnification” in this prospectus.

We and other affiliates of Kentucky Power Company may issue additional bonds.

Kentucky Power Company may in the future sell property similar to the Cost Recovery Property to us in order to secure Additional Series of bonds or to one or more affiliated entities other than us in connection with the issuance of a new issuance of securitized bonds without your prior review or approval. Kentucky Power Company has covenanted in the sale agreement not to sell property similar to the Cost Recovery Property to us or other entities to secure any Additional Series of bonds if the issuance would result in the credit ratings on the Bonds being reduced or withdrawn.

The Financing Order authorizes us to issue, one or more Additional Series of bonds, in an aggregate principal amount not to exceed the balance of Eligible Costs that may be recovered by Kentucky Power Company under the Financing Order. Any Additional Series would be offered pursuant to a separate registration statement and may include terms and provisions that would be unique to that particular series. In the event a customer does not pay in full all amounts owed under any bill, including charges relating to one or more series of

 

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securitized bonds, Kentucky Power Company, as servicer, is required to allocate any resulting shortfalls in charges ratably based on the amounts of charges owing in respect of the Bonds, any Additional Series of bonds issued by us and any amounts owing to any subsequently created affiliate of Kentucky Power Company which issues securitized bonds. Accordingly, if a dispute arises with respect to the allocation of the charges or other delays occur on account of the administrative burdens of making such allocation, we cannot assure you that the issuance of a new series or new securitized bonds would not cause reductions or delays in payment on your Bonds. In addition, your interests might conflict with the interests of the bondholders of another series, which could result in an outcome that is materially unfavorable to you.

The credit ratings are no indication of the expected rate of payment of principal on the Bonds.

We expect the Bonds will receive credit ratings from two nationally recognized statistical rating organizations, or NRSROs. A rating is not a recommendation to buy, sell or hold the Bonds. The ratings merely analyze the probability that we will repay the total principal amount of the 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 in accordance with the expected sinking fund schedule.

Under Rule 17g-5 of the Exchange Act, NRSROs providing the sponsor with the requisite certification will have access to all information posted on a website by the sponsor for the purpose of determining the initial rating of the Bonds and monitoring such rating after the closing date. As a result, an NRSRO other than the NRSRO hired by the sponsor (the hired NRSRO) may issue ratings on the 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 closing date. Issuance of any Unsolicited Rating will not affect the issuance of the Bonds. Issuance of an Unsolicited Rating lower than the ratings assigned by the hired NRSRO might adversely affect the value of the Bonds and, for regulated entities, could affect the status of the Bonds as a legal investment or the capital treatment of the Bonds. Investors in the Bonds should consult with their legal counsel regarding the effect of an Unsolicited Rating that is lower than the rating of a hired NRSRO. None of Kentucky Power Company, 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 Kentucky Power Company 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 Bonds, a hired NRSRO could withdraw its ratings on the Bonds, which could adversely affect the market value of your Bonds and/or limit your ability to resell your Bonds.

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

Broader use of distributed generation by retail customers may result from customers’ changing perceptions of the merits of utilizing existing generation technology, tax or other economic incentives or from technological developments resulting in smaller-scale, more fuel efficient, more environmentally friendly and/or more cost effective distributed generation. Moreover, an increase in distributed generation may result if extreme weather conditions result in shortages of grid-supplied energy or if other factors cause grid-supplied energy to be less reliable. Therefore, more widespread use of distributed generation might allow greater numbers of retail customers to reduce or eliminate their use of the distribution services provided by Kentucky Power Company. As a result, the servicer will need to utilize the true-up mechanism to increase the charges billed to remaining customers.

The absence of a secondary market for the Bonds might limit your ability to resell your Bonds.

The underwriters for the Bonds may assist in resales of the Bonds, but they are not required to do so. A secondary market for the Bonds might not develop, and we do not expect to list the Bonds on any securities

 

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exchange. If a secondary market does develop, it might not continue or it might not be sufficiently liquid to allow you to resell any of your Bonds. Please read “Plan of Distribution.”

You might receive principal payments for the Bonds later than you expect.

The amount and the rate of collection of the charges, together with the related true-up charge adjustments, will generally determine whether there is a delay in the scheduled repayment of the principal of the Bonds. If the servicer collects the charges at a slower rate than expected from the retail customers, it might have to request adjustments of the charges. If those adjustments are not timely and accurate, you might experience a delay in payments of principal and interest and a decrease in the value of your investment in the Bonds.

Risks associated with the Investment Company Act.

The issuing entity has not registered with the SEC as an investment company pursuant to the Investment Company Act in reliance on the exception provided under Section 3(c)(5) thereof, although there may be additional exclusions or exemptions available to the issuing entity.

If the SEC or a court of competent jurisdiction were to find that the issuing entity is in violation of the Investment Company Act for having failed to register as an investment company thereunder, possible consequences include, but are not limited to, the following: (i) the SEC could apply to a district court to enjoin the violation; (ii) investors in the Bonds could sue the issuing entity and recover any damages caused by the violation; and (iii) any contract to which the issuing entity is party that is made in, or whose performance involves, violation of the Investment Company Act would be unenforceable by any party to the contract unless a court were to find that under the circumstances enforcement would produce a more equitable result than nonenforcement and would not be inconsistent with the purposes of the Investment Company Act. Should the issuing entity be subjected to any or all of the foregoing, the issuing entity would be materially and adversely affected, and losses on the Bonds could occur.

Regulatory provisions affecting certain investors could adversely affect the liquidity and the regulatory treatment of investments in the 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:

 

(1)

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

 

(2)

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

 

(3)

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 Securitisation Regulation”).

The EU Securitisation Regulation imposes certain requirements (the “EU Investor Requirements”) with respect to “institutional investors” (as such term is defined for purposes of the EU Securitisation 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

 

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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 Securitisation Regulation imposes certain requirements (the “UK Investor Requirements”) with respect to “institutional investors” (as such term is defined for purposes of the UK Securitisation 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).

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 Securitisation Regulation or the UK Securitisation 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 Securitisation Regulation or the UK Securitisation Regulation (as applicable).

Failure by an SR Investor to comply with the EU Securitisation Regulation or the UK Securitisation Regulation (as applicable) with respect to an investment in the 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 Kentucky Power Company 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 Securitisation Regulation or the UK Securitisation 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 Bonds may not be a suitable investment for an SR Investor. As a result, the price and liquidity of the Bonds in the secondary market may be adversely affected.

It is expected that, with effect from November 1, 2024, the UK Securitisation Regulation and certain related measures will be repealed, and certain new laws, rules and guidance (the “Future UK Securitisation Rules”) will be implemented. The scope and requirements of the Future UK Securitisation Rules will be broadly similar to those of the UK Securitisation 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 Securitisation Rules will (amongst other things) make provision with regard to the “grandfathering” 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 Securitisation Rules, the relevant securitization will continue to be subject to the UK Securitisation Regulation and the applicable related measures, notwithstanding their repeal.

 

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Neither we nor Kentucky Power Company, 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 Securitisation 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 Bonds for investment, and, in particular, the scope and applicability of the EU Securitisation Regulation and the UK Securitisation Regulation and any equivalent or similar requirements (including the Future UK Securitisation Rules) and their compliance (where applicable) with any requirement thereof.

If the investment of collected 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 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 and a decrease in the value of your investment in the Bonds.

 

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REVIEW OF COST RECOVERY PROPERTY

Pursuant to the rules of the SEC, Kentucky Power Company, as sponsor, has performed, as described below, a review of the Cost Recovery Property underlying the Bonds. As required by these rules, the review was designed and effected to provide reasonable assurance that disclosure regarding the Cost Recovery Property is accurate in all material respects. Kentucky Power Company did not engage a third party in conducting its review.

The Bonds will be secured under the indenture by the indenture’s trust estate. The principal asset of the indenture’s trust estate is the Cost Recovery Property relating to the Bonds. The Cost Recovery Property is a present property right authorized and created pursuant to the Kentucky Utilities Act and an irrevocable financing order. The Cost Recovery Property includes the irrevocable right to impose, bill, charge, collect and receive nonbypassable charges in amounts sufficient to pay scheduled principal and interest and other amounts and charges in connection with the Bonds. The charges are payable by all of Kentucky Power Company’s retail customers that, subject to certain limitations specified in the Kentucky Utilities Act and the Financing Order, consume electricity that is delivered through Kentucky Power Company’s transmission and distribution system.

During the 12 months ended December 31, 2024, approximately 34.89% of Kentucky Power Company’s total deliveries were to residential retail customers and approximately 65.11% were to non-residential retail customers. During this period, approximately 94.45% were to retail customers at distribution voltage and 5.55% were to retail customers at transmission voltage. During this period, the Commonwealth of Kentucky and other federal, state and local governmental entities comprised the source of approximately 1.59% of Kentucky Power Company’s total retail electric revenues.

Charges authorized in the Financing Order that relate to the Cost Recovery Property are irrevocable and not subject to reduction, impairment, or adjustment by further action of the Kentucky Public Service Commission except that charges are subject to semi-annual and other interim true-up adjustments to correct overcollections or undercollections and to provide the expected recovery of amounts sufficient to timely provide all scheduled payments of debt service and certain related costs and expenses of the issuing entity in connection with the Bonds. There is no “ceiling,” “cap” or maximum on the level of charges that may be imposed on Kentucky Power Company’s retail customers to generate sufficient revenues to pay interest and scheduled principal on the Bonds and certain related issuing entity costs and expenses. All revenues and collections resulting from charges provided for in the Financing Order that relate to the Bonds are part of the Cost Recovery Property. The Cost Recovery Property relating to the Bonds is described in more detail under “Description of the Cost Recovery Property” in this prospectus.

In the Financing Order, the Kentucky Public Service Commission, among other things:

 

•

orders that Kentucky Power Company, as servicer, shall collect from all retail customers required to pay charges under the Financing Order, charges in an amount sufficient to provide for the timely payment of scheduled principal and interest on the Bonds,

 

•

orders that upon the transfer of the Cost Recovery Property to us by Kentucky Power Company, we shall have all of the rights, title and interest of Kentucky Power Company with respect to the Cost Recovery Property, and

 

•

guarantees that it will act under the Financing Order as expressly authorized by the Kentucky Utilities Act to ensure that expected charge revenues are sufficient to pay on a timely basis scheduled principal and interest on the Bonds.

Please read “The Kentucky Utilities Act” and “Kentucky Power Company’s Financing Order” in this prospectus for more information.

The characteristics of Cost Recovery Property are unlike the characteristics of assets underlying mortgage and other commercial asset securitizations because Cost Recovery Property based on statute and state regulatory

 

35

commission proceedings. Because the nature and characteristics of the Cost Recovery Property and many elements of the Bonds are set forth and constrained by the Kentucky Utilities Act, Kentucky Power Company, as sponsor, does not originate, underwrite or select the assets to serve as security for the Bonds. The Kentucky Utilities Act and the Kentucky Public Service Commission require the imposition on, and collection of the charges from, existing and future retail customers, subject to limited exceptions. Since the charges are assessed against all such retail customers and the true-up adjustment mechanism adjusts for the impact of customer defaults, the collectability of the charges is not ultimately dependent upon the credit quality of particular Kentucky Power Company customers, as would be the case in the absence of the true-up adjustment mechanism.

The review by Kentucky Power Company of the Cost Recovery Property underlying the Bonds has involved a number of discrete steps and elements. First, Kentucky Power Company analyzed and applied the Kentucky Utilities Act’s requirements for securitization of Eligible Costs in seeking approval from the Kentucky Public Service Commission for the issuance of the Financing Order and in its proposal with respect to the characteristics of the Cost Recovery Property to be created pursuant to the Financing Order. Kentucky Power Company worked with its counsel in preparing the application for a financing order and with the Kentucky Public Service Commission on the terms of the proposed order. Moreover, Kentucky Power Company worked with its counsel and counsel to the underwriters in preparing the legal agreements that provide for the terms of the Bonds and the security for the Bonds. Kentucky Power Company has analyzed economic issues and practical issues for the scheduled payment of the Bonds in terms of impacts of economic factors, potentials for disruptions due to weather or catastrophic events and its own forecasts for customer growth as well as the historic accuracy of its prior forecasts.

In light of the nature of the Cost Recovery Property as a property interest created by legislative action, Kentucky Power Company has taken (or prior to the offering of the Bonds, will take) the following actions in connection with its review of the Cost Recovery Property and the preparation of the disclosure for inclusion in this prospectus describing the Cost Recovery Property, the Bonds and the proposed securitization:

 

•

reviewed the Kentucky Utilities Act and the rules and regulations of the Kentucky Public Service Commission as they relate to the Cost Recovery Property in connection with the preparation and filing of the application with the Kentucky Public Service Commission for the approval of the Financing Order in order to confirm that the application and proposed order satisfied applicable statutory and regulatory requirements;

 

•

actively participated in the proceeding before the Kentucky Public Service Commission relating to the approval of the requested financing order;

 

•

compared the Financing Order, as issued by the Kentucky Public Service Commission, to the Kentucky Utilities Act and the rules and regulations of the Kentucky Public Service Commission as they relate to the Cost Recovery Property to confirm that the Financing Order met such requirements;

 

•

compared the proposed terms of the Bonds to the applicable requirements in the Kentucky Utilities Act, the Financing Order and the regulations of the Kentucky Public Service Commission to confirm that they met such requirements;

 

•

prepared and reviewed the agreements to be entered into in connection with the issuance of the Bonds and compared such agreements to the applicable requirements in the Kentucky Utilities Act, the Financing Order and the regulations of the Kentucky Public Service Commission to confirm that they met such requirements;

 

•

reviewed the disclosure in this prospectus regarding the Kentucky Utilities Act, the Financing Order and the agreements to be entered into in connection with the issuance of the Bonds, and compared such descriptions to the relevant provisions of the Kentucky Utilities 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 bondholders (or the trustee acting on their behalf) could successfully challenge the constitutionality of any legislative action by the Commonwealth of Kentucky (including the Kentucky Public Service Commission) that repealed or amended the Kentucky Utilities Act in a manner that could substantially impair the value of the Cost Recovery Property, or substantially reduce, alter or impair the charges;

 

•

reviewed the process and procedures in place for it, as servicer, to perform its obligations under the servicing agreement, including without limitation, billing and collecting the charges to be provided for under the Cost Recovery Property, forecasting charge revenues, preparing and filing applications for true-up adjustments to the charges;

 

•

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

 

•

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

In connection with the preparation of such models, Kentucky Power Company:

 

•

reviewed (i) the historical retail electric usage and customer growth of Kentucky Power Company’s retail customers and (ii) forecasts of expected energy sales and customer growth;

 

•

reviewed the historic variance between (i) actual annual revenues collected by revenue class and (ii) forecasts of annual revenues expected to be collected by revenue class;

 

•

analyzed the sensitivity of the weighted average life of the Bonds in relation to variances in actual energy consumption levels (retail electric sales) from forecasted levels and in relation to the true-up mechanism in order to assess the probability that the weighted average life of the 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 charges to address under or overcollections in light of scheduled payments on the Bonds.

As a result of this review, Kentucky Power Company has concluded that:

 

•

the Cost Recovery Property, the Financing Order and the agreements to be entered into in connection with the issuance of the Bonds meet in all material respects the applicable statutory and regulatory requirements;

 

•

the disclosure in this prospectus regarding the Kentucky Utilities Act, the Financing Order and the agreements to be entered into in connection with the issuance of the Bonds is as of its date, accurate in all material respects;

 

•

In its capacity as the servicer, Kentucky Power Company has adequate processes and procedures in place to perform its obligations under the servicing agreement;

 

•

charge collections, as adjusted from time to time as provided in the Kentucky Utilities Act and the Financing Order, are expected to be sufficient to pay on a timely basis scheduled principal and interest on the Bonds; and

 

•

the design and scope of Kentucky Power Company’s review of the Cost Recovery Property as described above is effective to provide reasonable assurance that the disclosure regarding the Cost Recovery Property in this prospectus is accurate in all material respects.

 

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THE KENTUCKY UTILITIES ACT

Kentucky Power Company and Other Utilities May Securitize Eligible Costs

We May Issue Bonds to Recover Kentucky Power Company’s Eligible Costs.

The Kentucky Utilities Act authorizes the Kentucky Public Service Commission to issue financing orders approving the issuance of bonds, such as the Bonds issued by us, to recover certain Eligible Costs of an electric utility. Under the Kentucky Utilities Act, proceeds of bonds must be used to directly or indirectly recover, finance or refinance capitalized cost assets and financing costs that are secured by or payable from Cost Recovery Property.

The Kentucky Utilities Act contains a number of provisions designed to facilitate the recovery of Eligible Costs incurred by an electric utility. Please read “Key Questions and Answers Regarding the Bonds and Related True-Up Mechanism” in this prospectus.

Creation of Cost Recovery Property.

Under the Kentucky Utilities Act, Cost Recovery Property is created when the rights and interests of an electric utility or successor under a financing order, including the right to impose, bill, charge, collect and receive charges authorized in the Financing Order, are first sold or transferred to an assignee, such as us, and are pledged to secure Bonds.

A Financing Order is Irrevocable.

A financing order, once effective, together with the charges authorized in that financing order, is irrevocable and not subject to reduction, impairment, postponement, termination or adjustment by the Kentucky Public Service Commission, except for adjustments pursuant to the Kentucky Utilities Act in order to correct any overcollections or undercollections of the charges and to provide for the expected recovery of amounts sufficient to timely provide all payments of debt service and other required amounts and charges in connection with the related bonds. Although a financing order is irrevocable, the Kentucky Utilities Act allows for applicants to apply for one or more new financing orders to provide for refinancing, retiring or refunding bonds if such subsequent financing order satisfies all of the criteria specified in Sections 278.670 to 278.696 and 65.114 of the Kentucky Utilities Act.

State Pledge.

Under the Kentucky Utilities Act, the Commonwealth of Kentucky has pledged, for the benefit and protection of the bondholders, the owners of Cost Recovery Property, the other financing parties and the electric utility, that the Commonwealth of Kentucky and its agencies, including the Kentucky Public Service Commission, will not (1) alter the provisions of the Kentucky Utilities Act, (2) take or permit any action that would impair the value of the Cost Recovery Property or the security for the Bonds or revise the Recovery Costs for which recovery is authorized, (3) impair the rights and remedies of the bondholders, assignees and other financing parties, (4) amend, modify, or terminate the financing order by any subsequent action, or, (5) except for adjustments discussed in “Kentucky Power Company’s Financing Order-Statutory True-ups” and “The Servicing Agreement-True-Up Adjustment Process,” reduce, impair, postpone, terminate or otherwise adjust the charges to be imposed, billed, charged, collected, remitted and periodically adjusted for the benefit of holders, any assignee and any other financing parties, until the principal, interest, premium, if any, financing costs and any other fees, expenses or charges incurred, and contracts to be performed, in connection with the Bonds have been paid and performed in full.

Please read “Risk Factors-Risks Associated with Potential Judicial, Legislative or Regulatory Actions.”

 

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Constitutional Matters.

To date, no federal or Kentucky cases addressing the repeal or amendment of the Kentucky Utilities Act or securitization provisions analogous to those contained in the Kentucky Utilities Act have been decided. There have been cases in which federal courts have applied the Contract Clause of the United States 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. Kentucky courts have applied the Contract Clause of the Kentucky Constitution to invalidate legislation that substantially impairs private contractual obligations, although in matters less analogous than addressed by the federal courts. Such determinations under Kentucky law are highly-fact-dependent.

Based upon this case law, Sidley Austin LLP, as counsel to Kentucky Power Company and us, expects to deliver an opinion, prior to the closing of the offering of the 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 Commonwealth of Kentucky’s intent to be bound with the holders of the Bonds 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 Commonwealth of Kentucky and the holders of the Bonds and, with regard to Kentucky, Stites & Harbison, PLLC, as Kentucky counsel to Kentucky Power Company and us, expects to deliver an opinion, prior to the closing of the offering of the Bonds described in this prospectus, to the effect that Kentucky courts would treat the Contract Clause of the Kentucky 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,” the opinion of Sidley Austin LLP, with respect to the Contract Clause of the United States Constitution, and the opinion of Stites & Harbison, PLLC, with respect to the Contract Clause of the Kentucky Constitution, is expected to state that (a) a reviewing court of competent jurisdiction would hold that the Commonwealth of Kentucky and its agencies, including the Kentucky Public Service Commission could not constitutionally repeal or amend the Kentucky Utilities Act or take any other action contravening the state pledge and creating an impairment (without, as the Kentucky Utilities Act requires, providing full compensation by law for the full protection of the charges to be collected pursuant to the Financing Order and full protection of the holders of the Bonds), unless such court would determine that such impairment clearly is a reasonable and necessary exercise of the Commonwealth of Kentucky’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 state pledge (i) creates a binding contractual obligation of the Commonwealth of Kentucky 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 Kentucky Constitution (in the case of the opinion of Stites & Harbison, PLLC), and (ii) provides a basis upon which the holders of Bonds could challenge successfully on appeal any such action by the Kentucky Public Service Commission of a legislative character, including the rescission or amendment of the Financing Order, that such court determines violates the state pledge in a manner that substantially impairs or would substantially impair the value of the Cost Recovery Property or substantially reduces, alters or impairs the value of the charges, prior to the time that the Bonds are paid and performed in full, unless there is a judicial finding that the Kentucky Public Service 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 Kentucky legislature adversely affecting the Cost Recovery Property or the ability to collect charges may be considered a “taking” under the United States or Kentucky Constitutions. Sidley Austin LLP has advised us that it is not aware of any federal, and Stites & Harbison, PLLC, has advised us that it is not aware of any Kentucky, court cases addressing the applicability of the Takings Clause of the United States

 

39

or Kentucky Constitution, respectively, in a situation analogous to that which would be involved in an amendment or repeal of the Kentucky Utilities 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 Kentucky Utilities 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 Kentucky Constitution, Sidley Austin LLP and Stites & Harbison, PLLC, respectively, expect to render an opinion, prior to the closing of the offering of the Bonds described in this prospectus, to the effect that, under the existing case law of the respective courts each opinion is covering, a reviewing court of competent jurisdiction would hold (or with respect to the opinion of Stites & Harbison, PLLC, more likely than not, would hold), subject to all of the qualifications, limitations and assumptions set forth in each respective opinion, if it concludes that the Cost Recovery Property is protected by the Takings Clause of the United States Constitution (or the Takings Clause of the Kentucky Constitution with respect to the opinion of Stites & Harbison, PLLC), that the Commonwealth of Kentucky would be required to pay just compensation to the holders of the Bonds, as determined by such court, if the Kentucky legislature repealed or amended the Kentucky Utilities 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 holders of the Bonds in the Cost Recovery Property and deprived the holders of the Bonds of their reasonable expectations arising from their investments in the Bonds. In examining whether action of the Kentucky 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 holders of the Bonds, 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 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 Stites & Harbison, PLLC, has advised us that issues relating to the Contract and Takings Clauses of the Kentucky 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 holder of the Bonds would consider material.

In addition, Sidley Austin LLP expects to render an opinion, prior to the closing of the offering of the Bonds described in this prospectus, to the effect that under existing case law, a reviewing court of competent jurisdiction would hold that the Kentucky Utilities 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 Commonwealth of Kentucky, and will not be disregarded under the reserved powers doctrine, and Stites & Harbison, PLLC, expects to render an opinion, prior to the closing of the offering of the Bonds described in this prospectus, to the effect that the Kentucky Utilities Act has been duly enacted by the Kentucky legislature and is in effect as of the closing of the offering, and that Stites & Harbison, PLLC, is not aware of any constitutional infirmities with respect to the Kentucky Utilities Act.

We and Kentucky Power Company will file a copy of each of the Sidley Austin LLP and Stites & Harbison, PLLC, 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.”

 

40

The Kentucky Public Service Commission May Adjust Charges.

The Kentucky Utilities Act requires the Kentucky Public Service Commission to provide in all financing orders a mechanism requiring that the charges be adjusted at least annually. The Financing Order for the Bonds requires that the charges on retail customers to be adjusted semi-annually (or, beginning 12 months prior to the scheduled final payment date of the Bonds, quarterly for such series). The purpose of these adjustments is:

 

•

to correct any overcollections or undercollections of the charges, and

 

•

to provide for the expected recovery of amounts sufficient to timely provide all payments of debt service and other required amounts and charges in connection with the Bonds.

Charges Are Nonbypassable.

The Kentucky Utilities Act provides that the charges are nonbypassable. “Nonbypassable” with respect to charges means that an electric utility collects these charges (i) from all existing and future retail customers receiving electric service from the electric utility, its successors or assignees under Kentucky Public Service Commission-approved rate schedules even if a retail customer elects to purchase electricity from an alternate electric supplier if public utility regulations were amended to permit customers to select electricity suppliers in this service territory. Kentucky Power Company is the only utility authorized to supply and distribute electricity in its certified service territory and would either directly or indirectly continue to bill retail customers for distribution services even if the electricity is supplied by another electricity supplier.

The Kentucky Utilities Act Protects the Bondholders’ Lien on Cost Recovery Property.

The Kentucky Utilities Act provides that the transfer of an interest in Cost Recovery Property to an assignee will be perfected against all third parties, including subsequent judicial or other lien creditors, when:

 

•

the Financing Order has been issued,

 

•

the assignor has rights in the Cost Recovery Property or the power to transfer rights in the Cost Recovery Property to an assignee,

 

•

transfer documents have been executed and delivered by the assignor to the assignee in connection with the issuance of the Bonds,

 

•

the assignor has received value for the Cost Recovery Property, and

 

•

a notice of the transfer has been filed with the Office of the Secretary of State of the Commonwealth of Kentucky.

The Kentucky Utilities Act further provides that a valid and binding lien and security interest in Cost Recovery Property may be created only when the last of following has occurred: (a) the issuance of the Financing Order, (b) the execution and delivery of a security agreement granting the security interest in connection with the issuance of Bonds, (c) the debtor has rights to the Cost Recovery Property or the power to transfer rights in the Cost Recovery Property or (d) the value is received for the grant of the security interest in the Cost Recovery Property. Upon the filing of a financing statement with the Office of the Secretary of State of the Commonwealth of Kentucky, such security interest is perfected against all parties having claims of any kind, including against all claims of lien creditors, and shall have priority over all competing security interests and other claims other than any security interest previously perfected.

The Kentucky Utilities Act provides that priority of transfers and security interests in Cost Recovery Property will not be affected by:

 

•

commingling of funds collected by Kentucky Power Company as charges with its other funds and collections; or

 

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•

modifications to the charges resulting from any true-up adjustment.

Please read “Risk Factors-Risks Associated With Potential Bankruptcy Proceedings of the Seller or the Servicer.”

The Kentucky Utilities Act Characterizes the Transfer of Cost Recovery Property as a True Sale.

The Kentucky Utilities Act provides that an electric utility’s or an assignee’s sale, assignment or transfer of Cost Recovery Property is an absolute transfer and true sale under Kentucky law and is not a pledge of or a secured transaction relating to the electric utility’s or assignee’s right, title and interest in, to and under the Cost Recovery Property, if the agreement governing that transfer expressly states that the transfer is a sale or other absolute transfer other than for federal and state income tax purposes. Please read “The Sale Agreement” and “Risk Factors-Risks Associated With Potential Bankruptcy Proceedings of the Seller or the Servicer.”

 

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KENTUCKY POWER COMPANY’S FINANCING ORDER

Kentucky Power Company’s Financing Order

On June 29, 2023, Kentucky Power Company filed its application with the Kentucky Public Service Commission for a financing order to recover a balance of (a) certain Eligible Costs (at the time totaling approximately $471.2 million), plus (b) carrying costs through the date costs are financed, minus (c) all insurance, scrap and salvage proceeds, applicable unamortized regulatory liabilities for excess deferred income taxes and the present value of return on all accumulated deferred income taxes related to pretax costs with respect to a retired or abandoned facility and related facilities (such balance, the “Securitizable Balance”), plus, certain other up-front qualified costs incurred in connection with such financing.

On April 11, 2025, the Kentucky Public Service Commission issued its Financing Order which amends, restates and supersedes the Financing Order issued on January 10, 2024, and authorized Kentucky Power Company to cause to be issued Bonds in one or more series in an aggregate principal amount equal to the sum of (a) the Securitizable Balance at the time the Bonds are issued, plus (b) upfront financing costs, plus (c) certain other up-front Eligible Costs, including (i) the cost of original issue discount, credit enhancements and other arrangements to enhance marketability, (ii) the cost of the Kentucky Public Service Commission’s financial advisor, and any additional costs incurred by Kentucky Power Company to comply with the requests and recommendations of the Kentucky Public Service Commission’s financial advisor, (iii) any costs incurred by Kentucky Power Company for the appeal of the Financing Order and (iv) any costs incurred by Kentucky Power Company in connection with any post-issuance audit or other procedure mandated by the Financing Order. The Financing Order became final and non-appealable on May 15, 2025.

In the Financing Order, the Kentucky Public Service Commission guarantees that it will act under such irrevocable Financing Order as expressly authorized by the Kentucky Utilities Act to ensure that expected charge revenues are sufficient to pay scheduled principal and interest on the Bonds and other costs, including fees and expenses, in connection with the Bonds. The Financing Order, pursuant to the provisions of the Kentucky Utilities Act, is irrevocable and is not subject to reduction, impairment or adjustment by further action of the Kentucky Public Service Commission, except as contemplated by the periodic true-up adjustments. The Financing Order also provides that the true-up mechanism and all other obligations of the Commonwealth of Kentucky and the Kentucky Public Service Commission set forth in the irrevocable Financing Order are direct, explicit, irrevocable and unconditional upon issuance of the Bonds, and are legally enforceable against the Commonwealth of Kentucky and the Kentucky Public Service Commission in accordance with Kentucky law.

We have filed the Financing Order with the SEC as an exhibit to the registration statement of which this prospectus forms a part. We have summarized portions of the Financing Order. Please read “Key Questions and Answers Regarding the Bonds and Related True-Up Mechanism” in this prospectus.

Collection of Charges

The Financing Order authorizes Kentucky Power Company to collect the cost recovery charges from existing and future retail customers in an amount sufficient to provide for timely recovery of its aggregate qualified costs, which include scheduled principal and interest on the Bonds and certain ongoing fees and expenses associated with the Bonds. There is no “cap” on the level of the charges that may be imposed on consumers of electricity, to pay on a timely basis scheduled principal and interest on the Bonds.

Issuance Advice Letter

By the close of the business day after the pricing date for the Bonds and prior to their issuance, Kentucky Power Company is required to file with the Kentucky Public Service Commission an issuance advice letter, which will:

 

•

demonstrate compliance with the requirements of the Financing Order,

 

43

•

evidence the final terms on which the Bonds will be issued,

 

•

show the actual dollar amount of the charges relating to the Bonds,

 

•

identify the Cost Recovery Property we will purchase that will secure the Bonds,

 

•

identify us,

 

•

certify that, based on information reasonably available, the structuring and pricing of the Bonds will result in the lowest charges consistent with market conditions and the terms of the Financing Order, and

 

•

update the benefit analysis to verify that the final amount securitized satisfies the statutory financial tests.

Both the issuance advice letter and the accompanying charge rider (referred to in the Financing Order as the “Securitized Surcharge Rider”) becomes effective on the date of issuance of the Bonds unless the Kentucky Public Service Commission issues an order, prior to noon on the fourth business day after the determination of the final terms of the Bonds, that the proposed issuance does not comply with the requirements of the Kentucky Utilities Act or the Financing Order. The Kentucky Public Service Commission’s review of the issuance advice letter will be limited to confirming the arithmetic accuracy of the calculations and to compliance with the specific requirements contained in the issuance advice letter.

Charge Rider

On our behalf, Kentucky Power Company is required, prior to the issuance of any charges, to complete and file a charge rider in the form attached to the Financing Order. The charge rider establishes the initial charges. It also implements the procedures for periodic adjustments to the charges, the procedures to remit charge payments to our collection account and the procedures to reconcile remittances with actual charge-offs. Please read “Description of the Cost Recovery Property—Charge Rider; Charges.”

Statutory True-Ups

The Kentucky Utilities Act mandates that the charges be adjusted at least annually to correct any overcollections or undercollections of the charges and to ensure the expected recovery of amounts sufficient to timely provide payment of all amounts due on the Bonds. While the Kentucky Utilities Act only requires annual adjustments, the Financing Order for the Bonds to be issued by us requires that charges on retail customers to initially be adjusted at least semi-annually. Beginning 12 months prior to the scheduled final payment date of the Bonds, the servicer is also required under the Financing Order to make mandatory true-up adjustments quarterly, which adjustments will be calculated in a manner so that all Bonds are expected to be paid on the Payment Date next following such quarterly true-up adjustment. True-up adjustments may also be made by the servicer under the Financing Order more frequently at any time, without limits as to frequency, in order to ensure the expected recovery of amounts sufficient to timely provide all payments of debt service and other required amounts and charges in connection with the Bonds.

The required debt service payments for a given period and other amounts to be collected pursuant to the charge in that period, such as ongoing financing costs authorized by the Financing Order, are sometimes referred to as the “Periodic Payment Requirement” and is described in more detail under “The Servicing Agreement – True-Up Adjustment Process.” True-up adjustments will be based upon the cumulative differences between the Periodic Payment Requirement and the amount of charge remittances to the trustee. In order to provide for adequate revenues from the charges, the servicer will calculate the adjusted charges using its most recent forecast of revenues and electric consumption and its most current estimates of ongoing transaction-related expenses.

The Kentucky Public Service Commission must be given at least ten days’ notice prior to making any true-up adjustment. In the event any correction to a true-up adjustment due to mathematical errors in the calculation of the adjustment or otherwise is necessary, the correction will be made in a future true-up adjustment so as not to delay the implementation of the requested true-up adjustment.

 

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There is no “ceiling,” “cap” or maximum on the level of the charges that may be imposed on retail customers as a result of the true-up process. Through the true-up mechanism, which adjusts for undercollections and overcollections of the charges due to any reason, retail customers share in the liabilities of all other retail customers for the payment of the charges.

In the irrevocable Financing Order, the Kentucky Public Service Commission guarantees that it will act under the Financing Order as expressly authorized by the Kentucky Utilities Act to ensure that expected charge revenues are sufficient to pay scheduled principal and interest on the Bonds and other costs, including fees and expenses, in connection with the Bonds.

Statutory True-Ups-Credit Risk

The Commonwealth of Kentucky has pledged in the Kentucky Utilities Act that neither it nor its agencies, including the Kentucky Public Service Commission, will (1) alter the provisions of the Kentucky Utilities Act, (2) take or permit any action that would impair the value of the Cost Recovery Property or the security for the Bonds or revise the recovery costs for which recovery is authorized, (3) impair the rights and remedies of the holders, assignees and other financing parties, or, (4) except as permitted in connection with a true-up adjustment authorized by the statute, reduce, alter or impair the charges until the principal, interest, premium, if any, Financing Costs, and any other fees, expenses or charges incurred and contracts to be performed in connection with the Bonds, have been paid and performed in full.

Allocation

Under the terms of the Financing Order, Kentucky Power Company will allocate the Eligible Costs among the revenue classes (residential retail customers and non-residential retail customers) according to the percentages described below under “Description of the Cost Recovery Property-Charge Rider; Charges.”

Servicing Agreement

In the Financing Order, the Kentucky Public Service Commission authorized Kentucky Power Company, as the servicer, to enter into the servicing agreement described under “The Servicing Agreement” in this prospectus.

Binding on Successors

The Financing Order, along with the charges authorized in the Financing Order, is binding on:

 

•

Kentucky Power Company;

 

•

any successor to Kentucky Power Company;

 

•

any other entity responsible for billing and collecting charges on our behalf; and

 

•

any successor to the Kentucky Public Service Commission.

 

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DESCRIPTION OF THE COST RECOVERY PROPERTY

Creation of Cost Recovery Property; Financing Order

The Kentucky Utilities Act defines “securitized property” (defined as “Cost Recovery Property” for purposes of this prospectus) as (i) all rights and interests a utility, its successor, or assignee under a financing order, including the right to impose, bill, charge, collect and receive charges authorized under such financing order and to obtain periodic adjustments to those charges and (ii) all collections, claims or proceeds arising from the rights and interests specified in such financing order.

In addition to the right to impose, bill, charge, collect and receive charges, the Financing Order:

 

•

authorizes the transfer of Cost Recovery Property to us and the issuance of Bonds;

 

•

establishes procedures for periodic true-up adjustments to charges in the event of overcollection or undercollection; and

 

•

provides that the Financing Order is irrevocable and the Kentucky Public Service Commission will not reduce, impair, postpone, terminate or otherwise adjust charges approved in the Financing Order (except for the periodic adjustments to the charges).

Charge Rider; Charges

The charge rider establishes the initial charges. It also implements the minimum requirements for charges, the procedures for periodic adjustments to the charges, the procedures to remit charge payments and the annual procedures allowing the servicer to reconcile remittances with actual charge-offs.

The charges will be payable by all existing and future retail customers of Kentucky Power Company. For more information, please read “The Kentucky Utilities Act—Kentucky Power Company and Other Utilities May Securitize Qualified Costs.”

For purposes of billing the charges, each customer will be designated into one of two groups of retail electric customers, referred to as revenue classes, consisting of residential retail customers and all other retail customers (i.e., non-residential retail customers). Under the terms of the Financing Order, Kentucky Power Company will initially allocate the charges among the revenue classes as follows:

Charge Initial Allocation of Costs to Revenue Classes

 

Revenue Classes		Allocation Percentage
Residential			43.5566	%
Non-Residential retail customers			56.4434	%
Total			100	%

The nonbypassable charge applicable to each revenue class for any period, which must be adjusted on at least a semi-annual basis and may be adjusted more frequently to correct undercollections and overcollections, will be determined based on the allocation percentage of such class and will be calculated according to a methodology approved in the Financing Order, which includes the allocation of Eligible Costs to be recovered through the charge on a percent of revenue basis. Specifically, the interest and principal payments, along with other eligible amounts, to be recovered in a given period, referred to as the Periodic Payment Requirement in the Financing Order, are first allocated on a percent of revenue basis among the revenue classes. The Periodic Payment Requirement, along with undercollections and overcollections from previous periods, to be recovered through the charge from each revenue class is then grossed up (or increased) to account for the projection of

 

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uncollectible charges and projection of payment lags between the billing and collection of charges in the period in which the charge will be in effect. The grossed-up amount allocated to each revenue class is then used to calculate a charge based on expected billing to be charged to each customer within that revenue class during the period. Each new customer will be assigned to the appropriate revenue class.

The percentage of the total bill received by an average customer that the cost recovery charge and all other charges represent is set forth below. These charges will be adjusted semi-annually, or more frequently under certain circumstances, by the servicer in accordance with its filings with the Kentucky Public Service Commission.

An estimate of the initial charge for the Bonds would represent approximately   % of the total bill received by a 1,000 kWh residential retail customer as of      , 2025.

Billing and Collection Terms and Conditions

The cost recovery charges will be assessed by the servicer, for our benefit as owner of the Cost Recovery Property, based on revenue from each retail customer from time to time. The servicer is responsible for billing and collecting the charges. Charges will be collected by the servicer from customers as part of its normal collection activities. 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 account payments of charges on each business day based on estimated collections in accordance with the procedures described below under “The Servicing Agreement-Remittances to Collection Account.”

The obligation to pay charges is not subject to any right of set-off in connection with the bankruptcy of the seller or any other entity. The charges are “nonbypassable” in accordance with the provisions set forth in the Kentucky Utilities Act and the Financing Order. If a retail customer pays only a portion of its bill, a pro-rata amount (based on all charges billed to such retail customer) of charge revenues will be deemed to be collected. In the case of any shortfall, Kentucky Power Company will allocate that shortfall, first, ratably based on the amount owed to Kentucky Power Company or other parties and the amount owed for other fees and charges, other than late charges, and, second, all remaining collections will be allocated to late charges. The portion owed in respect of charges will be further allocated as between the Bonds and another series of bonds that we may issue from time to time. If a customer fails to pay all or any portion of the charges, Kentucky Power Company or its successor transmission and distribution utility may terminate service to such non-paying customer in accordance with the Financing Order, Kentucky Public Service Commission regulations, and applicable statutes.

 

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THE SELLER, SERVICER, DEPOSITOR AND SPONSOR

General

Kentucky Power Company will be the seller, servicer and depositor of the Cost Recovery Property securing the Bonds, and will be the sponsor of the issuance of the Bonds.

Kentucky Power Company is a fully regulated electric utility organized under Kentucky law providing transmission and distribution service. As of December 31, 2024, Kentucky Power Company provided transmission and distribution service of electric power to approximately 163,000 retail customers, covering a service territory of approximately 4,895 operational square miles. The retail customer base includes a mix of residential and non-residential retail customers. During the 12 months ended December 31, 2024, AEP Kentucky billed approximately 5,321,277,015 retail kilowatt hours of electricity resulting in operating revenues of $706,582,368 and operating income of $36,861,721. Kentucky Power Company is an operating subsidiary of American Electric Power Company, Inc., referred to as AEP, a public utility holding company based in Columbus, Ohio. AEP is focused on building a smarter energy infrastructure and delivering new technologies and custom energy solutions to its customers. AEP’s over 16,000 employees operate and maintain the nation’s largest electricity transmission system and nearly 225,000 miles of distribution lines to deliver power to nearly 5.6 million retail customers in 11 states. AEP also is one of the nation’s largest electricity producers with approximately 29,000 megawatts of diverse generating capacity. The Bonds do not constitute a debt, liability or other legal obligation of Kentucky Power Company or AEP.

Kentucky Power Company is subject to the jurisdiction of the Federal Energy Regulatory Commission (“FERC”) under the Federal Power Act of 2005 with respect to the issuance of securities, acquisitions and divestitures of utility assets, certain affiliate transactions and other matters. Kentucky Power Company is regulated by the Kentucky Public Service Commission with respect to rates charged for delivery of electricity over its transmission and distribution system for end-use consumption by retail customers, quality of service, and service area certification.

Municipalization

Kentucky law may authorize certain local municipalities to seek to acquire portions of Kentucky Power Company’s electric distribution facilities through the power of eminent domain for use as part of municipally-owned utility systems. Although the power of eminent domain has not been used by municipalities in Kentucky in recent times to acquire electric distribution systems, there can be no assurance that one or more municipalities will not seek to acquire some or all of Kentucky Power Company’s electric distribution facilities while Bonds remain outstanding. The Kentucky Utilities Act specifies that the charges approved by a Kentucky Public Service Commission order shall be collected by an electric utility as well as its “successors.” In the servicing agreement, Kentucky Power Company has covenanted to assert in an appropriate forum that any municipality that acquires any portion of Kentucky Power Company’s electric distribution facilities must be treated as a successor to Kentucky Power Company under the Kentucky Utilities Act and the Financing Order and that retail customers in such municipalities remain responsible for payment of the charges. However, the involved municipality might assert that it should not be treated as a successor to Kentucky Power Company for these purposes and that its distribution customers are not responsible for payment of the charges. In any such cases, there can be no assurance that the charges will be collected from customers of municipally-owned utilities who were formerly customers of Kentucky Power Company. Even if the municipally-owned utility acquiring Kentucky Power Company’s utility plant is deemed a successor to Kentucky Power Company for purposed of the Kentucky Utilities Act, the municipally-owned utility may assert that it is not bound by the Kentucky Utilities Act because municipally-owned electric utilities are not subject to the Kentucky Public Service Commission’s jurisdiction, including tariffs filed by Kentucky Power Company with the Kentucky Public Service Commission, or because the legal obligations imposed by the Financing Order do not follow the assets obtained through condemnation. Any decrease in the retail customer base from which charges are collected might result in missing payments or payment delays and lengthened weighted average life of the Bonds.

 

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Servicing Experience

The Bonds are the first issuance of bonds Kentucky Power Company has sponsored that are secured by Cost Recovery Property created under the Kentucky Utilities Act; however, AEP through its other subsidiaries has prior experience as servicer in the issuance of bonds similar to the Bonds, including the issuance of the following:

 

(i)

$336,700,000 aggregate principal amount of senior secured storm recovery bonds by SWEPCO Storm Recovery Funding LLC, a wholly owned special purpose subsidiary of Southwestern Electric Power Company (“SWEPCO”), issued on December 18, 2024, for the purpose of recovering certain storm recovery costs, including carrying charges, related to Hurricanes Laura and Delta and winter storm Uri, and funding a new storm recovery reserve account, where SWEPCO, a subsidiary of AEP, acted as servicer (the “2024 SWEPCO Bonds”);

 

(ii)

$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”);

 

(iii)

$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”);

 

(iv)

$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”);

 

(v)

$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

 

(vi)

$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 2024 SWEPCO Bonds, 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”).

Kentucky Power Company Customer Base and Electric Energy Consumption in the Kentucky Power Company Service Territory

Kentucky Power Company’s retail customer base consists of two revenue reporting rate classes (the “revenue classes”): residential and non-residential. The revenue classes are broad groups that include accounts with a wide range of load characteristics served under a variety of rate designs.

 

49

The following tables show the electricity delivered to retail customers, electric delivery revenues and average number of retail customers for each of the two revenue classes for 2024 and each of the four preceding years in the Kentucky Power Company service territory. There can be no assurances that the retail electricity sales, retail electric revenues and number of retail customers or the composition of any of the foregoing will remain at or near the levels reflected in the following tables.

Electricity Delivered to Retail Customers, Electric Delivery Revenues and Retail Customers *

 

Retail Electric Usage (As Measured by Billed GWh Sales)
Revenue Class		2020								2021								2022								2023								2024
Residential			1,953				38.64	%			2,025				39.10	%			1,958				36.53	%			1,796				34.23	%			1,852				34.89	%
Non-Residential			3,101				61.36	%			3,155				60.90	%			3,401				63.47	%			3,449				65.77	%			3,457				65.11	%
Total Retail			5,054				100.00	%			5,180				100.00	%			5,358				100.0	%			5,245				100.00	%			5,309				100.00	%

 

Distribution Revenue ($ Thousands)
Revenue Class		2020								2021								2022								2023								2024
Residential		$	231,918				47.03	%		$	283,526				48.17	%		$	313,999				45.28	%		$	258,587				44.38	%		$	276,694				43.56	%
Non-Residential		$	261,205				52.97	%		$	305,050				51.83	%		$	379,407				54.72	%		$	324,060				55.62	%		$	358,559				56.44	%
Total Retail		$	493,123				100.00	%		$	588,576				100.00	%		$	693,405				100.00	%		$	582,647				100.00	%		$	635,253				100.00	%

 

Average Retail Customers by Revenue Class
Revenue Class		2020								2021								2022								2023								2024
Residential			134,284				81.01	%			133,805				80.89	%			132,619				80.77	%			131,090				80.55	%			130,852				80.52	%
Non-Residential			31,478				18.99	%			31,611				19.11	%			31,565				19.23	%			31,653				19.45	%			31,655				19.48	%
Total Retail			165,762				100.00	%			165,416				100.00	%			164,184				100.00	%			162,742				100.00	%			162,507				100.00	%

 

*	Totals may not add up to 100% due to rounding.

Forecasting Revenue

Kentucky Power Company produces a revenue forecast semi-annually for planning purposes. These forecasts are the basis for earnings projections and capacity/generation planning. “Revenue” means (a) for the “Residential” Revenue Class, all revenues from charges for electric service to residential customers, including base rate revenues and revenue from riders, except for revenue from Kentucky Power’s environmental surcharge mechanism, which is a percent of revenue surcharge authorized pursuant to KRS 278.183; nonrecurring charges as defined by 807 KAR 5:011, Section 1(4), such as a reconnection charge; and pass through charges, which would consist of taxes or fees, if any, not embedded in Kentucky Power’s revenue requirement and cost of service; and (b) for the “Non-Residential” Revenue Class, all revenues from charges to non-residential customers for retail electric service, including base rate revenues and revenue from riders, except for revenue for fuel costs and from Kentucky Power’s environmental surcharge mechanism, nonrecurring charges, and pass through charges.

Kentucky Power Company’s revenue forecast is developed by applying the load forecast for each revenue 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 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 Kentucky Power Company’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

 

50

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 revenue value.

In producing a revenue forecast, Kentucky Power Company 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.

The forecast cycle completed during the third quarter is typically adopted as Kentucky Power Company’s official budget. Kentucky Power Company 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 revenue versus actual revenue for Kentucky Power Company’s revenue classes for the following preceding years for which annual revenue forecasts were prepared. There can be no assurances that the variance levels will remain at or near the levels reflected in the following table.

Annual Forecast Variance For Revenue ($000s)⁽¹⁾

 

		2018				2019				2020				2021				2022(2)				2023(2)				2024
Residential
Forecast		$	250,754			$	241,472			$	235,553			$	253,276				n/a				n/a			$	314,795
Actual		$	252,342			$	244,742			$	242,840			$	284,380			$	315,778			$	263,671			$	286,859
Variance		$	1,588			$	3,270			$	7,287			$	31,104				n/a				n/a			$	-27,936
Non-Residential
Forecast		$	212,452			$	211,928			$	207,494			$	203,368				n/a				n/a			$	260,131
Actual		$	205,408			$	204,497			$	194,227			$	203,998			$	209,461			$	190,901			$	229,941
Variance		$	-7,044			$	-7,431			$	-13,267			$	630				n/a				n/a			$	-30,190
Total
Forecast		$	463,206			$	453,400			$	443,047			$	456,644				n/a				n/a			$	574,926
Actual		$	457,750			$	449,239			$	437,067			$	488,378			$	525,239			$	454,571			$	516,799
Variance		$	-5,456			$	-4,162			$	-5,980			$	31,734				n/a				n/a			$	-58,127

 

(1)	Forecast sales are temperature normal. Numbers not exact due to rounding.

(2)	Variance forecasts for years 2022 and 2023 were not conducted due to a proposed sale of Kentucky Power Company. The proposed sale was abandoned following the FERC’s order denying the application for authorization of the proposed sale.

Billing and Collections

The charges will be collected by the servicer from customers as part of its normal collection activities. The 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 the charges on each business day based on estimated collections in accordance with the procedures described below under “The Servicing Agreement—Remittances to Collection Account.”

The obligation to pay the charges is not subject to set off, counterclaim, charge or defense by the applicable electric utility or other person, including as a result of the electric utility’s failure to provide past, present, or

 

51

future services, or in connection with the bankruptcy, reorganization, or other insolvency proceeding of the electric utility, any affiliate or any other entity. The charges are nonbypassable in accordance with the provisions set forth in the Kentucky Utilities Act and the Financing Order. If a customer pays only a portion of its bill, a pro-rata amount (based on all amounts owed by such customer) of the charges will be deemed to be collected provided that late fees and late charges may be allocated to the servicer to the extent consistent with the “Terms and Conditions of Service.”

The servicer is permitted to commingle the charges it collects on our behalf with other funds collected for itself or others prior to remitting such charges to the trustee, pursuant to and subject to the terms of the servicing agreement, the intercreditor agreement, the Financing Order and the Kentucky Utilities Act.

Credit Policy.

In accordance with the Kentucky Public Service Commission’s regulations, the servicer may require deposits from certain applicants for service of existing customers’ accounts to protect it against losses. Deposits may be obtained from customers who cannot demonstrate credit worthiness.

Billing.

The servicer bills the customers once every month, and we expect that an approximately equal number of bills will be distributed each business day. Payments are generally due not later than 21 days after issuance of the related bill. If the due date falls on a holiday or weekend, the due date for payment purposes is the next business day. A bill not paid on or before the due date is considered delinquent. Based on qualifications, customers may be eligible for a budget billing plan. Failure to make timely payments while on any bill payment assistance plan allows the servicer to remove customers from that payment plan, begin account collection activities including the initiation of termination of service.

Collection Process.

Kentucky Power Company historically received the majority of customer payments via electronic fund transfers the U.S. mail and paystations; however, other payment options such as credit/debit cards are also available. Kentucky Power Company may change their collection policies and procedures, consistent with Kentucky Public Service Commission guidelines and the Financing Order, from time to time.

Loss Experience

The following table sets forth information relating to the annual net charge-offs for Kentucky Power Company.

Net Write-Offs as a Percentage of Billed Distribution Revenues

 

		2020				2021				2022				2023				2024
Billed Electric Revenues ($000)		$	493,123			$	588,576			$	693,405			$	582,647			$	635,253
Net Write-Offs ($000)		$	1,305			$	3,397			$	2,483			$	2,428			$	911
Percentage of Billed Revenue			0.26	%			0.58	%			0.36	%			0.42	%			0.14	%

Days Sales Outstanding

The following table sets forth information relating to the average number of days that Kentucky Power Company’s bills for services remained outstanding during the calendar year (or other period referred to below) ending on each of the dates referred to below.

 

52

Average Days Sales Outstanding

 

		2020				2021				2022				2023				2024
Average Days Sales Outstanding			24.5				26.93				23.38				21.89				22.57

Delinquencies

The following table sets forth information relating to the delinquency experience of Kentucky Power Company for services as of each of the dates shown below.

Delinquencies as a Percentage of Total Billed Revenues

 

		As Of 12/31/20				As Of 12/31/21				As Of 12/31/22				As Of 12/31/23				As Of 12/31/24
1 – 30 days past due			1.35	%			1.05	%			1.17	%			1.11	%			0.45	%
31 – 60 days past due			0.46	%			0.15	%			0.17	%			0.17	%			0.11	%
61 – 90 days past due			0.28	%			0.07	%			0.08	%			0.07	%			0.06	%
90 + days past due			0.52	%			0.20	%			0.09	%			0.09	%			0.08	%
Total			2.61	%			1.47	%			1.51	%			1.43	%			0.70	%

 

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

Amounts due from retail customers are considered delinquent if a retail customer has paid less than the full amount due by the due date.

Where to Find Information About Kentucky Power Company.

AEP, a public utility holding company that wholly owns our sponsor and sole member, Kentucky Power Company, files periodic reports with the SEC as required by the Exchange Act. These SEC filings are available to the public over the internet at the SEC’s website at http://www.sec.gov. AEP maintains a website at https://www.aep.com/, where it posts AEP’s SEC filings as well as other filings and reports about Kentucky Power Company. No information contained on that website (other than the materials specifically incorporated by reference herein) constitutes part of this prospectus.

 

53

KENTUCKY POWER COST RECOVERY LLC, THE ISSUING ENTITY

We are a limited liability company formed under the Delaware Limited Liability Company Act pursuant to a limited liability company agreement executed by our sole member, Kentucky Power Company, and the filing of a certificate of formation with the Secretary of the State of Delaware. The limited liability company agreement will be amended and restated prior to the issuance date, and all references in this prospectus to our limited liability company agreement mean our amended and restated limited liability company agreement. Our limited liability company agreement restricts us from engaging in activities other than those described in this section. We do not have any employees, but we will pay our member for out-of-pocket expenses incurred by the member in connection with its services to us in accordance with our limited liability company agreement and administration agreement. We have summarized selected provisions of our limited liability company agreement below, a copy of which will be filed as an exhibit to the registration statement of which this prospectus is a part. On the date of issuance of the Bonds, our capital will be equal to 0.5% of the principal amount of such Bonds issued or such other amount as may allow the Bonds to achieve the desired security rating and treat the Bonds as debt under applicable guidance issued by the Internal Revenue Service, which we also refer to as the IRS.

As authorized by the Financing Order or any future financing orders, our organizational documents, as well as the basic documents supporting the Bonds, give us the authority and flexibility to issue Additional Series of bonds and to acquire additional cost recovery property which will be pledged to the payment of other Additional Bonds but only so long as the ratings assigned to the Bonds by the rating agencies would not be downgraded or withdrawn as a result of the issuance of such Additional Series. As a result, we may acquire additional cost recovery property and issue one or more Additional Series that are supported by such additional and separate cost recovery property or other collateral to finance the Eligible Costs approved by a financing order. See “Security for the Bonds — Issuance of Additional Bonds” and “Security for the Bonds — Allocations as Between Series of Bonds” in this prospectus.

Any Additional Series may include terms and conditions that would be unique to that particular Additional Series. If a customer does not pay in full all amounts owed under any bill, including charges relating the Bonds and any Additional Series, Kentucky Power Company, as servicer, is required to allocate any resulting shortfalls in charges ratably based on the amounts of charges owing in respect of the Bonds, any Additional Series of bonds issued by us and any amounts owing to any subsequently created affiliate of Kentucky Power Company which issues securitized bonds. As a result, you may experience delays and reductions in the amounts paid on your Bonds. See “RISK FACTORS—OTHER RISKS ASSOCIATED WITH AN INVESTMENT IN THE BONDS – We and other affiliates of Kentucky Power Company may issue additional bonds.”

However, an Additional Series may not be issued unless the rating agency condition has been satisfied. “Security for the Bonds — Issuance of Additional Bonds” in this prospectus. Any new issuance would be offered pursuant to a separate registration statement or other offering document and may include terms and provisions that would be unique to that particular issuance.

As of the date of this prospectus, we have not carried on any business activities and have no operating history. We are not an agency or instrumentality of the Commonwealth of Kentucky but are responsible to the Commonwealth of Kentucky and the Kentucky Public Service Commission as described below under the caption “-Our Relationship with the Kentucky Public Service Commission.”

At the time of issuance of the Bonds, our assets will consist of:

 

•

the Cost Recovery Property and all related charges,

 

•

our rights under the statutory true-up mechanism, including all rights to compel the servicer to file for and obtain periodic adjustments to the charges in accordance with the Kentucky Utilities Act, the Financing Order, the charge rider and any charge rider adjustments filed in connection therewith,

 

•

the guarantee of the Kentucky Public Service Commission to implement the statutory true-up mechanism,

 

54

•

the pledge by the Commonwealth of Kentucky not to impair the value of the Cost Recovery Property or the rights of the bondholders,

 

•

our rights under the sale agreement pursuant to which we will acquire the Cost Recovery Property, and under the bill of sale delivered by Kentucky Power Company pursuant to the sale agreement,

 

•

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

 

•

our rights under the intercreditor agreement and any other intercreditor agreement executed in connection with the Cost Recovery Property and the Bonds,

 

•

our rights under the administration agreement and any other administration agreement executed in connection with the Cost Recovery Property and the Bonds,

 

•

the collection account for the Bonds and all subaccounts of the collection account, and all amounts of cash, instruments, investment property or other assets on deposit therein or credited thereto from time to time and all financial assets and securities entitlements carried therein or credited thereto,

 

•

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

 

•

all accounts, chattel paper, deposit accounts, documents, general intangibles, goods, instruments, investment property, letters of credit, letters-of-credit rights, money, commercial tort claims and supporting obligations related to the foregoing, and

 

•

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

The Indenture provides that the Cost 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 to secure our obligations in respect of the Bonds. Pursuant to the indenture, the collected charges remitted to the trustee by the servicer must be used to pay principal and interest on the Bonds and our other obligations specified in the Indenture.

Restricted Purpose

We have been created for the sole purpose of:

 

•

acquiring, owning, holding, administering, servicing and entering into agreements regarding the receipt and servicing of (i) the Cost Recovery Property and other collateral-related assets, and (ii) additional Cost Recovery Property and other collateral related to one or more Additional Series and related assets;

 

•

managing, selling, assigning, pledging, collecting amounts due on, or otherwise dealing with (i) the Cost Recovery Property and the other collateral-related assets and (ii) additional Cost Recovery Property and other collateral related to one or more Additional Series and related assets;

 

•

negotiating, authorizing, executing, delivering, assuming and performing our obligations under the basic documents applicable to the Bonds and the transaction documents applicable to any Additional Series;

 

•

filing with the SEC one or more registration statements under the Securities Act and filing such other documents necessary or desirable to register the Bonds or any Additional Series under securities laws;

 

•

authorizing, executing, delivering, issuing and registering the Bonds and each Additional Series;

 

•

making payment on the Bonds and on each Additional Series;

 

•

pledging our interest in (i) the Cost Recovery Property and other collateral to the trustee under the Indenture in order to secure the Bonds and (ii) additional Cost Recovery Property and other collateral related to an Additional Series to the applicable trustee under the corresponding indenture in order to secure such Additional Series; and

 

55

•

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

Our limited liability company agreement does not permit us to engage in any activities not directly related to these purposes, including issuing bonds (other than the Bonds and any Additional Series), borrowing money or making loans to other persons (other than the indebtedness incurred under the basic documents and the transaction documents applicable to any Additional Series). The list of permitted activities set forth in our limited liability company agreement may not be altered, amended or repealed without the affirmative vote of our member and affirmative vote of a majority of our managers, which vote must include the affirmative vote of our independent managers.

Our Relationship with Kentucky Power Company

On the issue date for the Bonds, Kentucky Power Company will sell Cost Recovery Property to us pursuant to a sale agreement between us and Kentucky Power Company. Kentucky Power Company will service the Cost Recovery Property pursuant to a servicing agreement between us and Kentucky Power Company and will provide administrative services to us pursuant to an administration agreement between us and Kentucky Power Company.

Our Relationship with the Kentucky Public Service Commission

Pursuant to the Financing Order,

 

•

the Kentucky Public Service Commission or its designated representative has a joint decision-making role with Kentucky Power Company with respect to the structuring, marketing and pricing of the Bonds and all matters related to the structuring and pricing of the Bonds will be determined through a joint decision of Kentucky Power Company and the Kentucky Public Service Commission or its designated representative,

 

•

Kentucky Power Company is directed to take all necessary steps to ensure that the Kentucky Public Service Commission or its designated representative is provided sufficient and timely information to allow the Kentucky Public Service Commission or its designated representative to fully participate in, and exercise its decision-making power over, the proposed securitization, and

 

•

the servicer will file periodic adjustments to charges with the Kentucky Public Service Commission on our behalf.

We have also agreed that certain reports concerning charge collections will be provided to the Kentucky Public Service Commission.

Our Management

Pursuant to our limited liability company agreement, our business will be managed by five or more managers, of whom at least two are independent managers, one of which will be appointed from time to time by Kentucky Power Company or, in the event that Kentucky Power Company transfers its interest in us, by our owner or owners, and the other of which will be appointed by the Kentucky Public Service Commission. Following the initial issuance of Bonds, we will have at least two independent managers, each of whom, among other things, is an individual who (i) has prior experience as an independent director, independent manager or independent member for special-purpose entities, (ii) is employed by a nationally-recognized company that provides professional Independent Managers and other corporate services in the ordinary course of its business, (iii) is duly appointed as an independent manager of ours and (iv) is not and has not been for at least five years from the date of his or her appointment, and while serving as an Independent Manager will not be, any of the following:

 

•

a member, partner, equity holder, manager, director, officer or employee of us, Kentucky Power Company or any of our affiliates or any of our owner’s affiliates (other than as an independent director,

 

56

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

 

•

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

 

•

a family member of any member, partner, equity holder, manager, director, officer, employee, creditor, supplier or service provider, or

 

•

a person who controls (whether directly, indirectly or otherwise) Kentucky Power Company or its affiliates or any member, partner, equity holder, manager, officer, employee, director, creditor, supplier or service provider described above.

Kentucky Power Company, as our sole member, has appointed William Bleier as independent manager and the Kentucky Public Service Commission has appointed Sean Emerick as the other independent manager. None of our managers or officers has been involved in any legal proceedings which are specified in Item 401(f) of the SEC’s Regulation S-K.

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

 

Name		Age		Background
Trevor I. Mihalik		58		President and manager of the issuing entity. Vice president and chief financial officer of Kentucky Power Company, executive vice president and chief financial officer of AEP, and executive vice president, chief financial officer and director of American Electric Power Service Corporation, a subsidiary of AEP (Service Corporation) since January 2025. Executive vice president and group president of Sempra from November 2023 until January 2025. From 2012 through 2023, he held various senior leadership positions at Sempra including executive vice president and chief financial officer, senior vice president, controller and chief accounting officer.
Matthew D. Fransen		48		Manager of the issuing entity. Vice president and treasurer of Kentucky Power Company, treasurer of AEP and senior vice president-treasury and finance of American Electric Power Service Corporation, a subsidiary of AEP (Service Corporation) since December 1, 2024. Joined the Service Corporation in January 2002 and was appointed as director-strategic initiatives in 2010, appointed managing director-strategic initiatives in 2013, became vice president-renewables in February 2016 and vice president-regulated infrastructure development in June 2021. Treasurer of certain other AEP system companies.
Franz D. Messner		57		Assistant treasurer and manager of the issuing entity. Assistant treasurer of Kentucky Power Company and managing director of corporate finance of American Electric Power Service Corporation, a subsidiary of AEP (Service Corporation) since May 2016, and was director of corporate planning and budgeting prior to that. Assistant Treasurer of certain other AEP system companies.

 

57

Name		Age		Background
Sean Emerick		59		Manager of the issuing entity. Lead project & program manager since October 2022 for CT Corporation Staffing, Inc., a subsidiary of CT Corporation System. Director, special services, CT Corporation, since 2014. From 2011 to 2014, regional service manager for CT Corporation and, prior to that, vice president and general manager of corporate services at National Registered Agents, Inc. from 2007 to 2011.
William Bleier		34		Manager of the issuing entity. Associate Director, Customer Service for CT Corporation since 2020. From 2017 to 2020 served as Service Manager, Large Corporations and prior to that served as Account Manager, Mid-Market from 2014 to 2017.

Manager Fees and Limitation on Liabilities

We have not paid any compensation to any manager since we were formed. We will not compensate our managers, other than the independent managers, for their services on our behalf. We will pay the annual fees of the independent managers from our revenues and will reimburse them for reasonable expenses. These expenses include the reasonable compensation, expenses and disbursements of the agents, representatives, experts and counsel that the independent managers may employ in connection with the exercise and performance of his or her rights and duties under our limited liability company agreement.

Our limited liability company agreement provides that to the extent permitted by law, the managers will not be personally liable for any of our debts, obligations or liabilities. Our limited liability company agreement further provides that, except as described below, to the fullest extent permitted by law, we will indemnify the managers against any liability incurred in connection with their services as managers for us if they acted in good faith and in a manner which they reasonably believed to be in or not opposed to our best interests. With respect to a criminal action, the managers will be indemnified unless they had reasonable cause to believe their conduct was unlawful. We will not indemnify the manager for any judgment, penalty, fine or other expense directly caused by their fraud, gross negligence or willful misconduct. In addition, unless ordered by a court, we will not indemnify the managers if a final adjudication establishes that their acts or omissions involved intentional misconduct, fraud or a knowing violation of the law and were material to the cause of action. We will pay any indemnification amounts owed to the managers out of funds in the collection accounts, subject to the priority of payments described in “Security for the Bonds-How Funds in the Collection Account will be Allocated.”

We Are a Separate and Distinct Legal Entity from Kentucky Power Company

Under our limited liability company agreement, we may not file a voluntary petition for relief under the Bankruptcy Code, without the affirmative vote of our member and the affirmative vote of all of our managers, including the independent managers. Kentucky Power Company has agreed that it will not cause us to file a voluntary petition for relief under the Bankruptcy Code. Our limited liability company agreement requires us, except for financial reporting purposes (to the extent required by generally accepted accounting principles) and for federal income tax purposes, and, to the extent consistent with applicable state law, state income and franchise tax purposes, to maintain our existence separate from Kentucky Power Company including:

 

•

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

 

•

making it apparent to third persons that we are an entity with assets and liabilities distinct from those of Kentucky Power Company, other affiliates of Kentucky Power Company, the managers or any other person; and

 

•

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

 

58

Administration Agreement

Kentucky Power Company will, pursuant to an administration agreement between Kentucky Power Company 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 Kentucky Power Company a fixed fee of $100,000 per annum, payable in installments of $50,000 on each Payment Date for performing these services, which shall be prorated based on the fraction of a calendar year during which Kentucky Power Company provides any of the services set forth in the administration agreement, plus we will reimburse Kentucky Power Company for all costs and expenses for services performed by unaffiliated third parties and actually incurred by Kentucky Power Company in performing such services described above.

Intercreditor Agreement

Kentucky Power Company is a party to the KPCo Receivables Purchase Agreement, under which it sells a portion of its accounts receivable to AEP Credit, a Kentucky Power Company affiliate, which in turn sells percentage interests in such receivables to financial institutions pursuant to the AEP Receivables Purchase Agreement. Kentucky Power Company has been appointed under the terms of the KPCo Receivables Agency Agreement as an agent for AEP Credit and the Receivables Agent for purposes of collecting and servicing the Kentucky Power Company receivables sold under this arrangement. Although the charges collected with respect to the Bonds are not subject to such receivable financial arrangement, the charges and accounts receivable are collected from some of the same customers of Kentucky Power Company and are expected to be collected for the foreseeable future under a single bill sent monthly to those customers. The Receivables Agent for such receivables financing arrangement will, prior to the issuance of the Bonds, execute the intercreditor agreement (or a joinder thereto) with AEP Credit, Kentucky Power Company, us and the trustee. The intercreditor agreement provides, among other things, that (i) the charges collected with respect to the Bonds are excluded from the assets sold under the receivables financing arrangement, (ii) in the event the accounts receivable investors have the right to replace Kentucky Power Company as collection agent upon the occurrence of certain events, such investors will not do so without the consent of the trustee (acting at the written direction of bondholders holding a majority in principal amount of the Bonds), and (iii) in the event that the trustee (acting at the written direction of the bondholders holding a majority in principal amount of the Bonds) has the right to replace Kentucky Power Company as servicer under the servicing agreement, the trustee (acting at the written direction of such bondholders) will not replace Kentucky Power Company without the consent of the Receivables Agent for the accounts receivable investors.

If Kentucky Power Company 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 Kentucky Power Company hereafter causes Cost Recovery Property or other similar property to be created under a separate financing order and acts as servicer for such Cost Recovery Property, or similar property, consisting of non-bypassable charges payable by Kentucky Power Company’s customers comparable to those sold by the seller pursuant to the sale agreement, in connection with a separate issuance of bonds, Kentucky Power Company 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 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 replace Kentucky Power Company as the servicer, we may experience difficulties finding and using a replacement servicer.”

Continuing Disclosure: SEC Filings

We plan to file with the SEC required periodic and current reports related to the Bonds consistent with the disclosure and reporting regime established in Regulation AB and will also post those periodic and current reports at a website associated with us or our affiliates.

 

59

DESCRIPTION OF THE BONDS

General

We have summarized below selected provisions of the indenture and the Bonds. A form of the indenture and series supplement are filed as exhibits to the registration statement of which this prospectus forms a part. Please read “Where You Can Find More Information.”

The Bonds are not a debt, liability or other obligation of the Commonwealth of Kentucky, the Kentucky Public Service Commission or of any political subdivision, governmental agency, authority or instrumentality of the Commonwealth of Kentucky and do not represent an interest in or legal obligation of Kentucky Power Company or any of its affiliates, other than us. Neither Kentucky Power Company nor any of its affiliates will guarantee or insure the Bonds. The Financing Order authorizing the issuance of the Bonds does not constitute a pledge of the full faith and credit of the Commonwealth of Kentucky or of any of its political subdivisions. The issuance of the Bonds under the Kentucky Utilities Act will not directly, indirectly or contingently obligate the Commonwealth of Kentucky or any of its political subdivisions to levy or to pledge any form of taxation for the Bonds or to make any appropriation for their payment.

We will issue the bonds and secure their payment under an indenture that we will enter into with U.S. Bank Trust Company, National Association, a national banking association, in its capacity as trustee, referred to in this prospectus as the “trustee.” We will issue the Bonds in minimum denominations of $2,000, or integral multiples of $1,000 in excess thereof, except for one bond which may be of a smaller denomination. The initial principal balance, scheduled final payment date, final maturity date and interest rate for the Bonds are stated in the table below:

 

Tranche

Expected Weighted Average Life (Years)

Principal Amount Offered*

Scheduled Final Payment Date

Final Maturity Date

Interest Rate

A

$

%

*	Principal amounts are approximate and subject to change.

The scheduled final payment date for the Bonds is the date when the outstanding principal balance will be reduced to zero if we make payments according to the sinking fund schedule. The final maturity date for the Bonds is the date when we are required to pay the entire remaining unpaid principal balance, if any, of all outstanding Bonds. The failure to pay the principal of the Bonds by the final maturity date is an event of default, but the failure to pay the principal of the Bonds by the scheduled final payment date will not be an event of default. Please read “-Interest Payments” and “-Principal Payments” and “-Events of Default; Rights Upon Event of Default” in this prospectus.

Payment and Record Dates and Payment Sources

Beginning _________, 2026, we will make payments on the 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). So long as the Bonds are in book-entry form, on each payment date, we will make interest and principal payments to the persons who are the holders of record as of the business day immediately prior to that payment date, which is referred to as the “record date.” If we issue certificated Bonds to beneficial owners of the Bonds, the record date will be the last business day of the calendar month immediately preceding the payment date. On each payment date, we will pay amounts on outstanding Bonds from amounts available in the collection account and the related subaccounts held by the trustee in the priority set forth under “Security for the Bonds—How Funds in the Collection Account Will Be Allocated” in this prospectus. These available amounts, which will include amounts collected by the servicer for us with respect to the charges, are described in greater detail under “Security for the Bonds-How Funds in the Collection Account will be Allocated” and “The Servicing Agreement-Remittances to Collection Account” in this prospectus.

 

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Interest Payments

Interest on the Bonds will accrue from and including the issue date to but excluding the first payment date, and thereafter from and including the previous payment date to but excluding the applicable payment date until the Bonds have been paid in full, at the interest rate indicated on the cover of this prospectus and in the table above on page 60. Each of those periods is referred to as an “interest accrual period.” We will calculate interest on the Bonds on the basis of a 360 day year of 12 30-day months.

On each payment date, we will pay interest on the Bonds equal to the following amounts:

 

•

if there has been a payment default, 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 the Bonds as of the close of business on the preceding payment date (or with respect to the initial payment date, the date of the original issuance of the Bonds) after giving effect to all payments of principal made on the preceding payment date, if any.

We will pay interest on the Bonds before we pay principal on the Bonds. Interest payments will be made from collections of charges, including amounts available in the excess funds subaccount and, if necessary, the amounts available in the capital subaccount. Please read “Security for the Bonds-How Funds in the Collection Account will be Allocated” in this prospectus.

Please read “Security for the Bonds-How Funds in the Collection Account will be Allocated” in this prospectus.

Principal Payments

On each payment date, we will pay principal of the Bonds to the bondholders equal to the sum, without duplication, of:

 

•

the unpaid principal amount of any bond whose final maturity date is on that payment date or, if the principal of the Bonds has been accelerated following an event of default, payment of the principal of the Bonds, without regard to the sinking fund schedule, and

 

•

payment of the principal of the Bonds in accordance with the sinking fund schedule, including any previously scheduled payments of principal that were not paid on prior payment dates.

On any payment date, unless an event of default has occurred and is continuing and the Bonds have been declared due and payable, the trustee will make principal payments on the Bonds only until the outstanding principal balances of those Bonds have been reduced to the principal balances specified in the applicable sinking fund schedule for that payment date. Accordingly, principal of the Bonds may be paid later, but not sooner, than reflected in the expected sinking fund schedule, except in the case of an acceleration. The entire unpaid principal balance of the Bonds will be due and payable on the final maturity date. The failure to make a scheduled payment of principal on the Bonds 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 pay in full the unpaid balance upon the final maturity date.

Unless the Bonds have been accelerated following an event of default, 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.

If an event of default (other than a breach by the Commonwealth of Kentucky of its pledge) has occurred and is continuing, then the trustee or the holders of not less than a majority in principal amount of the Bonds then

 

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outstanding may declare the Bonds to be immediately due and payable, in which event the entire unpaid principal amount of the Bonds will become due and payable. Please read “-Events of Default; Rights Upon Event of Default.” If there is a shortfall in the amounts available to make principal payments on the Bonds that are due and payable, including upon an acceleration following an event of default, the trustee will distribute principal from the collection account to the Bonds based on the principal amount then due and payable on the payment date. However, the nature of our business will result in payment of principal upon an acceleration of the Bonds being made as funds become available. Please read “RISK FACTORS—OTHER RISKS ASSOCIATED WITH AN INVESTMENT IN THE BONDS—Foreclosure of the trustee’s lien on the Cost Recovery Property for the Bonds might not be practical, and acceleration of the Bonds before maturity might have little practical effect.” and “-You may experience material payment delays or incur a loss on your investment in the Bonds because the source of funds for payment is limited” in this prospectus.

The expected sinking fund schedule below sets forth the corresponding principal payment that is scheduled to be made on each payment date for the Bonds from the issuance date to the scheduled final payment date. Similarly, the sinking fund schedule below sets forth the principal balance that is scheduled to remain outstanding on each payment date for the Bonds from the issuance date to the scheduled final payment date.

 

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Expected Sinking Fund Schedule⁽¹⁾

 

Semi-Annual Payment Date		Tranche A
		$
		$
		$
		$
		$
		$
Total Payments(2)		$

(1)	Terms are preliminary and subject to change.

(2)	Totals may not add up due to rounding.

We cannot assure you that the principal balance of the Bonds will be reduced at the rate indicated in the table above. The actual reduction in principal balances may occur more slowly. The actual reduction in principal balances will not occur more quickly than indicated in the above table, except in the case of acceleration due to an event of default under the indenture. The Bonds will not be in default if principal is not paid as specified in the schedule above unless the principal is not paid in full on or before the final maturity date.

 

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Expected Principal Ending Balances⁽¹⁾⁽²⁾

Outstanding Principal Balance

 

Semi-Annual Payment Date		Tranche A Balance
Issuance Date		$
		$
		$
		$
		$

(1)	Terms are preliminary and subject to change.

(2)	Totals may not add up due to rounding.

On each payment date, the trustee will make principal payments to the extent the principal balance of the 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.

Distribution Following Acceleration

Upon an acceleration of the maturity of the Bonds, the total outstanding principal balance of and interest accrued on the Bonds will become due and payable. Although principal will be due and payable upon acceleration, the true-up mechanism will not be utilized to increase the charges and the amount of the charges will continue to be based upon scheduled principal payments to be made in accordance with the sinking fund schedule. The nature of our business will result in principal being paid as charges are collected and funds become available. Please read “RISK FACTORS-OTHER RISKS ASSOCIATED WITH AN INVESTMENT IN THE BONDS—Foreclosure of the trustee’s lien on the Cost Recovery Property for the Bonds might not be practical, and acceleration of the Bonds before maturity might have little practical effect.” and “Risk Factors-You may experience material payment delays or incur a loss on your investment in the Bonds because the source of funds for payment is limited” in this prospectus.

Optional Redemption

We may not voluntarily redeem the Bonds.

Payments on the Bonds

The trustee will pay on each payment date to the holders of the Bonds, to the extent of available funds in the collection account, all payments of principal and interest then due. The trustee will make each payment other than the final payment with respect to any Bonds to the holders of record of the Bonds on the record date for that payment date. The trustee will make the final payment for the Bonds, however, only upon presentation and surrender of the Bonds at the office or agency of the trustee specified in the notice given by the trustee of the final payment. The trustee will mail or make available electronically a notice of the final payment to the 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 failure to pay accrued interest on any payment date (even if the failure is caused by a shortfall in charges received) will result in an event of default for the Bonds unless such failure is cured within five business

 

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days. Please read “-Events of Default; Rights Upon Event of Default.” Any interest not paid when due (plus interest on the defaulted interest at the applicable interest rate to the extent lawful) will be payable to the bondholders on a special record date. The special record date will be at least 15 business days prior to the date on which the trustee is to make such special payment (a “special payment date”). We will fix any special record date and special payment date. At least ten days before any special record date, the trustee will mail or make available electronically to each affected bondholder a notice that states the special record date, the special payment date and the amount of defaulted interest (plus interest on the defaulted interest) to be paid.

The entire unpaid principal amount of the Bonds will be due and payable:

 

•

on the final maturity date,

 

•

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 Bonds have declared the Bonds to be immediately due and payable.

However, the nature of our business will result in payment of principal upon an acceleration of the Bonds being made as funds become available. Please read “OTHER RISKS ASSOCIATED WITH AN INVESTMENT IN THE BONDS - Foreclosure of the trustee’s lien on the Cost Recovery Property for the Bonds might not be practical, and acceleration of the Bonds before maturity might have little practical effect.” and “-You may experience material payment delays or incur a loss on your investment in the Bonds because the source of funds for payment is limited.”

At the time, if any, we issue the Bonds in the form of definitive bonds and not to DTC or its nominee, the trustee will make payments on a payment date or a special payment date by wire transfer to each holder of a definitive bond of record on the applicable record date to an account maintained by the payee.

If any special payment date or other date specified for any payments to bondholders is not a business day, the trustee will make payments scheduled to be made on that special payment date or other date on the next succeeding business day and no interest will accrue upon the payment during the intervening period.

Fees and Expenses

As set forth in the table below, the issuing entity is obligated to pay fees to the servicer, the trustee, its independent managers and Kentucky Power Company as administrator. The following table illustrates this arrangement.

 

Recipient		Source of Payment		Fees and Expenses Payable
Servicer		Charge collections and investment earnings.		0.05% of the initial principal balance of the Bonds on an annualized basis (so long as servicer is Kentucky Power Company or an affiliate)
Trustee		Charge collections and investment earnings.		$5,000 per annum; plus expenses
Independent Managers		Charge collections and investment earnings.		$1,500 per annum; plus expenses
Administration Fee		Charge collections and investment earnings.		$50,000 per annum; plus expenses

The annual servicing fee payable to any servicer not affiliated with Kentucky Power Company shall not at any time exceed 0.6% of the initial principal balance of the Bonds unless such higher rate is approved by the Kentucky Public Service Commission. The charges will also be used by the trustee for the payment of our other financing costs and expenses relating to the Bonds, such as accounting and audit fees, rating agency fees and legal fees.

 

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Bonds Will Be Issued in Book-Entry Form

The Bonds will be available to investors only in the form of book-entry 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 your 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 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 Function of Clearstream

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 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 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. The Euroclear System 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. The Euroclear System 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 Bonds. Indirect access to the Euroclear System 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 the Euroclear System, and applicable Belgian law (collectively, the “Terms and Conditions”). These Terms and Conditions govern transfers of securities and cash within the Euroclear System, withdrawals of securities and cash from the Euroclear System and receipts of payments with respect to securities in the Euroclear System. 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 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.

 

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