EXHIBIT 10.2
TRANSITION PROPERTY SERVICING AGREEMENT
between
CENTERPOINT ENERGY TRANSITION BOND COMPANY II, LLC
Issuer
and
CENTERPOINT ENERGY HOUSTON ELECTRIC, LLC
Servicer
Dated as of December 16, 2005
TABLE OF CONTENTS
ARTICLE I DEFINITIONS........................................................... 2
SECTION 1.01. DEFINITIONS.................................................... 2
SECTION 1.02. OTHER DEFINITIONAL PROVISIONS.................................. 2
ARTICLE II APPOINTMENT AND AUTHORIZATION OF SERVICER............................ 2
SECTION 2.01. APPOINTMENT OF THE SERVICER;
ACCEPTANCE OF APPOINTMENT.................................. 2
SECTION 2.02. AUTHORIZATION.................................................. 2
SECTION 2.03. DOMINION AND CONTROL OVER TRANSITION PROPERTY.................. 3
ARTICLE III BILLING AND OTHER SERVICES.......................................... 3
SECTION 3.01. DUTIES OF THE SERVICER......................................... 3
SECTION 3.02. COLLECTION AND ALLOCATION OF TRANSITION CHARGES................ 5
SECTION 3.03. PAYMENT OF TC COLLECTIONS...................................... 6
SECTION 3.04. SERVICING AND MAINTENANCE STANDARDS............................ 6
SECTION 3.05. SERVICER'S CERTIFICATES........................................ 7
SECTION 3.06. ANNUAL STATEMENT AS TO COMPLIANCE;
NOTICE OF DEFAULT.......................................... 7
SECTION 3.07. ANNUAL REGISTERED INDEPENDENT PUBLIC
ACCOUNTING FIRM REPORT..................................... 7
SECTION 3.08. TRANSITION PROPERTY DOCUMENTATION.............................. 8
SECTION 3.09. COMPUTER RECORDS; AUDITS OF DOCUMENTATION...................... 8
SECTION 3.10. DEFENDING TRANSITION PROPERTY AGAINST CLAIMS................... 9
SECTION 3.11. OPINIONS OF COUNSEL............................................ 9
ARTICLE IV SERVICES RELATED TO TRANSITION CHARGE
ADJUSTMENTS AND PBRAF ADJUSTMENTS.......................... 10
SECTION 4.01. TRANSITION CHARGE ADJUSTMENTS
AND PBRAF ADJUSTMENTS...................................... 10
ARTICLE V THE SERVICER.......................................................... 10
SECTION 5.01. REPRESENTATIONS AND WARRANTIES OF THE SERVICER................. 10
SECTION 5.02. INDEMNITIES OF THE SERVICER; RELEASE OF CLAIMS................. 12
SECTION 5.03. MERGER OR CONSOLIDATION OF,
OR ASSUMPTION OF THE OBLIGATIONS OF, THE SERVICER.......... 15
SECTION 5.04. ASSIGNMENT OF THE SERVICER'S OBLIGATIONS....................... 17
SECTION 5.05. LIMITATION ON LIABILITY OF THE SERVICER AND OTHERS............. 17
SECTION 5.06. CENTERPOINT HOUSTON NOT TO RESIGN AS SERVICER.................. 17
SECTION 5.07. SERVICING FEE.................................................. 18
SECTION 5.08. SERVICER EXPENSES.............................................. 19
SECTION 5.09. APPOINTMENTS................................................... 19
SECTION 5.10. NO SERVICER ADVANCES........................................... 19
SECTION 5.11. REMITTANCES.................................................... 19
SECTION 5.12. PROTECTION OF TITLE............................................ 19
ARTICLE VI SERVICER DEFAULT..................................................... 19
SECTION 6.01. SERVICER DEFAULT............................................... 19
SECTION 6.02. NOTICE OF SERVICER DEFAULT..................................... 21
SECTION 6.03. WAIVER OF PAST DEFAULTS........................................ 21
SECTION 6.04. APPOINTMENT OF SUCCESSOR....................................... 21
SECTION 6.05. COOPERATION WITH SUCCESSOR..................................... 22
ARTICLE VII MISCELLANEOUS PROVISIONS............................................ 23
SECTION 7.01. AMENDMENT...................................................... 23
SECTION 7.02. NOTICES........................................................ 23
SECTION 7.03. ASSIGNMENT..................................................... 23
SECTION 7.04. LIMITATIONS ON RIGHTS OF OTHERS................................ 24
SECTION 7.05. SEVERABILITY................................................... 24
SECTION 7.06. SEPARATE COUNTERPARTS.......................................... 24
SECTION 7.07. HEADINGS....................................................... 24
SECTION 7.08. GOVERNING LAW.................................................. 24
SECTION 7.09. ASSIGNMENT TO THE TRUSTEE...................................... 24
SECTION 7.10. NONPETITION COVENANTS.......................................... 25
SECTION 7.11. TERMINATION.................................................... 25
SECTION 7.12. PUCT CONSENT................................................... 25
SECTION 7.13. EFFECT OF SUBSEQUENT PUCT REGULATIONS.......................... 26
SCHEDULE A TO SERVICING AGREEMENT
ANNEX 1 TO SERVICING AGREEMENT
APPENDIX A - MASTER DEFINITIONS
EXHIBIT A - SERVICER PROCEDURES
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TRANSITION PROPERTY SERVICING AGREEMENT dated as of December 16, 2005 (this
"Agreement") between CENTERPOINT ENERGY TRANSITION BOND COMPANY II, LLC, a
Delaware limited liability company (the "Issuer"), and CENTERPOINT ENERGY
HOUSTON ELECTRIC, LLC, a Texas limited liability company ("CenterPoint
Houston"), as the servicer of the Transition Property hereunder (together with
each successor to CenterPoint Houston in such capacity pursuant to Section 5.03
or 6.04, the "Servicer").
WHEREAS, pursuant to the Texas Electric Choice Plan and the Financing
Order, the Seller and the Issuer are concurrently entering into the Sale
Agreement dated as of the date hereof pursuant to which the Seller is selling
and the Issuer is purchasing the Transition Property created pursuant to the
Texas Electric Choice Plan and the Financing Order;
WHEREAS the Servicer is willing to service the Transition Property
purchased from the Seller by the Issuer;
WHEREAS the Issuer, in connection with ownership of the Transition
Property, desires to engage the Servicer to carry out the functions described
herein;
WHEREAS, the Transition Charges may not be itemized on Customers' bills
and the TC Collections initially will be commingled with other funds collected
from Customers and REPs (as applicable);
WHEREAS, the Financing Order calls for the Servicer to execute a servicing
agreement with the Issuer pursuant to which the Servicer will be required, among
other things, to impose and collect applicable Transition Charges for the
benefit and account of the Issuer, to make periodic Transition Charge
Adjustments required or allowed by the Financing Order, and to account for and
remit the applicable Transition Charges to or for the account of the Issuer in
accordance with the remittance procedures contained in the Servicing Agreement
without any charge, deduction or surcharge of any kind (other than the Servicing
Fee specified in the Servicing Agreement);
WHEREAS, a number of parties may have an interest in such commingled
collections, and such parties have entered into an Intercreditor Agreement as of
the date hereof that allows the party acting as the Utility (as defined therein)
to allocate the collected, commingled funds according to each interested party's
interest; and
WHEREAS, the Financing Order provides that the PUCT, acting through its
authorized legal representative and for the benefit of Texas ratepayers, will
enforce the Servicer's obligations imposed under this Agreement pursuant to the
Financing Order to the extent permitted by law.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
herein contained and intending to be legally bound hereby, the parties hereto
agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.01. DEFINITIONS. Capitalized terms used but not otherwise
defined in this Agreement have the respective meanings set forth in Appendix A
hereto.
SECTION 1.02. OTHER DEFINITIONAL PROVISIONS.
(a) The words "hereof," "herein," "hereunder" and words of similar
import when used in this Agreement shall refer to this Agreement as a whole and
not to any particular provision of this Agreement; Section, Appendix, Annex,
Exhibit and Schedule references contained in this Agreement are references to
Sections, Appendices, Annexes, Exhibits and Schedules in or to this Agreement
unless otherwise specified; and the term "including" shall mean "including
without limitation."
(b) The definitions contained in this Agreement are applicable to
the singular as well as the plural forms of such terms.
(c) All terms defined in this Agreement have the same defined
meanings when used in any certificate or other document made or delivered
pursuant to this Agreement unless otherwise defined therein.
ARTICLE II
APPOINTMENT AND AUTHORIZATION OF SERVICER
SECTION 2.01. APPOINTMENT OF THE SERVICER; ACCEPTANCE OF APPOINTMENT. The
Issuer hereby appoints the Servicer, and the Servicer hereby accepts such
appointment, to perform the Servicer's obligations pursuant to this Agreement on
behalf of and for the benefit of the Issuer or any assignee thereof in
accordance with the terms of this Agreement and applicable law. This appointment
and the Servicer's acceptance thereof may not be revoked except in accordance
with the express terms of this Agreement.
SECTION 2.02. AUTHORIZATION. With respect to all or any portion of the
Transition Property, the Servicer shall be, and hereby is, authorized and
empowered by the Issuer to:
(a) execute and deliver, on behalf of itself or the Issuer, as the
case may be, any and all instruments, documents or notices, and
(b) on behalf of itself or the Issuer, as the case may be, make any
filing and participate in Proceedings related to the duties of the Servicer
hereunder with any governmental authorities, including with the PUCT.
The Issuer shall furnish the Servicer with all executed documents as have
been prepared by the Servicer for execution by the Issuer, and with such other
documents as may be in the Issuer's possession, as necessary or appropriate to
enable the Servicer to carry out its servicing
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and administrative duties hereunder. Upon the written request of the Servicer,
the Issuer shall furnish the Servicer with any powers of attorney or other
documents necessary or appropriate to enable the Servicer to carry out its
duties hereunder.
SECTION 2.03. DOMINION AND CONTROL OVER TRANSITION PROPERTY.
Notwithstanding any other provision contained herein, the Servicer and the
Issuer agree that the Issuer shall have dominion and control over the Transition
Property, and the Servicer, in accordance with the terms hereof, is acting
solely as the servicing agent of and custodian for the Issuer with respect to
the Transition Property. The Servicer hereby agrees that it shall not take any
action that is not authorized by this Agreement, the Texas Electric Choice Plan
or the Financing Order, that is not consistent with its customary procedures and
practices, or that shall impair the rights of the Issuer with respect to the
Transition Property, in each case unless such action is required by law or court
or regulatory order.
ARTICLE III
BILLING AND OTHER SERVICES
SECTION 3.01. DUTIES OF THE SERVICER. The Servicer, as agent for the
Issuer (to the extent provided herein), shall have the following duties:
(a) Duties of Servicer Generally. The Servicer shall manage,
service, administer and make collections in respect of the Transition Property.
The Servicer's duties will include:
(i) calculating and billing the Transition Charges;
(ii) obtaining meter reads and providing such metering information
to the REPs, as necessary (unless another entity assumes metering
responsibilities in accordance with the Financing Order, applicable
tariffs or the Texas Electric Choice Plan);
(iii) collecting payments of Transition Charges and payments with
respect to Transition Property from all persons or entities responsible
for remitting Transition Charges and other payments with respect to
Transition Property to the Servicer under the Financing Order, the Texas
Electric Choice Plan, PUCT Regulations or applicable tariffs; provided,
however, the Issuer and the Servicer acknowledge and agree that pursuant
to the Intercreditor Agreement, payments in respect of Transition Charges
and Transition Property may be deposited initially into an account held
and processed by CenterPoint Houston in its capacity as the Utility for
the benefit of the Servicer, and that CenterPoint Houston in its
individual capacity may be replaced as the holder of such account by a
Replacement Servicer or Designated Account Holder as those terms are
defined and as set forth more fully in the Intercreditor Agreement;
(iv) posting all TC Collections remitted to the Servicer and posting
all late-payment penalties assessed against REPs (as described in Section
3.02);
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(v) responding to inquiries by Customers, REPs, the PUCT or any
other State, local or federal governmental authority with respect to the
Transition Property and the Transition Charges;
(vi) accounting for TC Collections and late-payment penalties of
REPs, investigating and resolving delinquencies (including, where
permitted by the Financing Order, Schedule TC2 and/or PUCT Regulations,
terminating transmission and distribution service for nonpayment of
charges), processing and depositing collections, making periodic
remittances to the Trustee and furnishing periodic reports to the Issuer,
the PUCT, the Trustee and each Rating Agency;
(vii) providing certified calculations and other information
reasonably requested by agents appointed by the Servicer to collect the
charges to enable the agents to perform collection services properly under
the Intercreditor Agreement and monitoring the collections of the agents
for compliance with the Intercreditor Agreement;
(viii) providing information reasonably requested by CenterPoint
Houston in connection with the allocation of collections between
Transition Charges and Transition Property on one hand, and other charges
and fees on the other;
(ix) monitoring payments by each REP, reviewing reports provided by
each REP and monitoring compliance by each REP with the credit standards
and deposit obligations set forth in the Financing Order;
(x) notifying each REP of any defaults by such REP in its payment
obligations and other obligations (including its credit standards) under
Schedule TC2, and enforcing against such REP at the earliest date
permitted by the Financing Order and Schedule TC2 any remedies provided by
such Schedule TC2, the Financing Order or other applicable law and
regulations;
(xi) making all filings with the PUCT and taking all other actions
necessary to perfect the Issuer's ownership interests in and the Trustee's
Lien on the Series Trust Estate;
(xii) selling, as the agent for the Issuer, as its interest may
appear, defaulted or written-off accounts in accordance with the
Servicer's usual and customary practices;
(xiii) taking action in connection with Transition Charge
Adjustments and PBRAF Adjustments as is set forth herein; and
(xiv) any other duties specified for a servicer under the Financing
Order, Schedule TC2, the Texas Electric Choice Plan or other applicable
law.
Anything to the contrary notwithstanding, the duties of the Servicer set
forth in this Agreement shall be qualified in their entirety by, and the
Servicer shall at all times comply with, the Financing Order, the Texas Electric
Choice Plan and any PUCT Regulations, orders or directions as in effect at the
time such duties are to be performed. Without limiting the generality of this
Section 3.01(a), in furtherance of the foregoing, the Servicer hereby agrees
that it shall
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also have, and shall comply with, the duties and responsibilities relating to
data acquisition, usage and ▇▇▇▇ calculation, billing, customer service
functions, collections, payment processing and remittance set forth in Exhibit A
hereto.
(b) Notification of Laws and Regulations. The Servicer shall
immediately notify the Issuer, the PUCT, the Trustee and each Rating Agency in
writing of any laws or PUCT Regulations, orders or directions hereafter
promulgated that have a material adverse effect on the Servicer's ability to
perform its duties under this Agreement.
(c) Other Information. Upon the reasonable request of the Issuer,
the Trustee, the PUCT or any Rating Agency, the Servicer shall provide to the
Issuer, the Trustee, the PUCT or such Rating Agency, as the case may be, any
public financial information in respect of the Servicer, or any material
information regarding the Transition Property to the extent it is reasonably
available to the Servicer, that may be reasonably necessary and permitted by law
for the Issuer, the Trustee, the PUCT or such Rating Agency to monitor the
performance by the Servicer hereunder. In addition, so long as any of the
Transition Bonds are Outstanding, the Servicer shall provide to the Issuer, to
the PUCT and to the Trustee, within a reasonable time after written request
therefor, any information available to the Servicer or reasonably obtainable by
it that is necessary to calculate the Transition Charges applicable to each
Customer Class.
SECTION 3.02. COLLECTION AND ALLOCATION OF TRANSITION CHARGES.
(a) The Servicer shall use all reasonable efforts, subject to
applicable law, to collect all amounts owed in respect of Transition Charges and
late-payment penalties (as set forth in Section 3.02(c) below) as and when the
same shall become due and shall follow such collection procedures as it follows
with respect to collection activities that the Servicer conducts for itself or
others. The Servicer shall not change the amount of or reschedule the due date
of any scheduled payment of Transition Charges, except as contemplated in this
Agreement or as required by law or court or PUCT order. The Servicer shall
enforce at the earliest possible date the obligations with respect to the
Transition Charges of each REP and each other Person owing or collecting
Transition Charges, provided that any REP shall be entitled to hold back from
its payment of Transition Charges to the Servicer an allowance for charge-offs
according to the procedure and calculations set forth in the Financing Order,
Schedule TC2 and the Issuer Annex.
(b) If an REP does not pay the full amount it has been billed by the
Servicer, the amount paid by the REP will first be proportioned between the
Transition Charges and other fees and charges (including amounts billed and due
in respect of transition charges associated with transition bonds issued under
other financing orders), other than late fees, and second, any remaining portion
of the payment will be attributed to late fees owed to CenterPoint Houston or
any successor.
(c) Each REP must pay Transition Charges within 35 days following
the date of each billing by the Servicer to such REP ("REP Billing Day"),
without regard to whether or when the REP receives payment from its retail
customers. The Servicer shall accept payment by electronic funds transfer, wire
transfer, and/or check. Payment will be considered received the date the
electronic funds transfer or wire transfer is received by the Servicer or, if
payment is made by check, the date the check clears. The Servicer shall assess
and collect a 5% late-
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payment penalty (the "Penalty") on all Transition Charges billed to an REP but
not paid by that REP by the close of business on the 35th day after the date on
which the Transition Charges were billed to the REP. Any and all such Penalty
payments shall be paid to the Trustee for deposit in the Collection Account and
shall be applied against Transition Charge obligations. An REP shall not be
obligated to pay the overdue Transition Charges of another REP. If an REP agrees
to assume the responsibility for the payment of overdue Transition Charges as a
condition of receiving the customers of another REP that has decided to
terminate service to those customers for any reason, the new REP shall not be
assessed the Penalty upon such Transition Charges; provided, however, that the
prior REP shall not be relieved of the previously assessed Penalties. Disputes
regarding whether and when an REP has made payment of billed Transition Charges
shall be resolved in accordance with Section 8(b) of the Issuer Annex.
SECTION 3.03. PAYMENT OF TC COLLECTIONS.
(a) The Servicer shall collect and remit to the Trustee, for deposit
in the Collection Account on a daily basis in accordance with Section 5.11, the
Transition Charges plus any Accrued Interest thereon from the date or dates such
Transition Charges were actually received in accordance with Section 3.02 upon
receipt of such collection from any source.
(b) The Servicer agrees and acknowledges that it will hold all TC
Collections and other Transition Property collected by it for the benefit of the
Issuer and the Trustee and that all amounts will be remitted by the Servicer in
accordance with this Agreement without any surcharge, fee, offset, charge or
other deduction other than as expressly permitted in the Financing Order and
without making any claim to reduce its obligation to remit all TC Collections
and any other proceeds of the Transition Property collected by it.
SECTION 3.04. SERVICING AND MAINTENANCE STANDARDS. The Servicer shall, on
behalf of the Issuer:
(a) manage, service, administer and make collections in respect of
the Transition Property with reasonable care and in material compliance with
applicable law, including all applicable PUCT Regulations and guidelines, using
the same degree of care and diligence that the Servicer exercises with respect
to billing and collection activities that the Servicer conducts for itself and
others;
(b) follow standards, policies and procedures in performing its
duties as Servicer that are customary in the electric transmission and
distribution industry or that the PUCT has mandated and that are consistent with
the terms and provisions of the Financing Order, Schedule TC2 and existing law;
(c) use all reasonable efforts, consistent with its customary
servicing procedures, to enforce and maintain the Issuer's and the Trustee's
rights in respect of the Transition Property;
(d) calculate Transition Charges and PBRAFs in compliance with the
Texas Electric Choice Plan, the Financing Order, any PUCT order related to
Transition Charge allocation and any applicable tariffs;
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(e) provide all reports to such parties to the Intercreditor
Agreement regarding the Transition Charges and PBRAFs as are necessary to effect
collection, allocation and remittance of payments in respect of Transition
Charges and other collected funds in accordance with this Agreement and the
Intercreditor Agreement; and
(f) make all filings required under the Texas Electric Choice Plan
or the UCC to maintain the perfected security interest of the Trustee in the
Series Trust Estate and use all reasonable efforts to otherwise enforce and
maintain the Trustee's rights in respect of the Transition Property and the
Series Trust Estate;
except where the failure to comply with any of the foregoing would not
materially and adversely affect the Issuer's or the Trustee's respective
interests in the Transition Property. The Servicer shall follow such customary
and usual practices and procedures as it shall deem necessary or advisable in
its servicing of all or any portion of the Transition Property, which, in the
Servicer's judgment, may include the taking of legal action pursuant to Section
3.10 hereof or otherwise.
SECTION 3.05. SERVICER'S CERTIFICATES. The Servicer shall provide to the
Issuer, the PUCT, the Trustee and the Rating Agencies the statements and
certificates specified in the Issuer Annex at the time and in the manner set
forth therein.
SECTION 3.06. ANNUAL STATEMENT AS TO COMPLIANCE; NOTICE OF DEFAULT. The
Servicer shall deliver to the Issuer, the PUCT, the Trustee and each Rating
Agency, on or before March 31 of each year beginning March 31, 2006, an
Officers' Certificate, stating that:
(i) a review of the activities of the Servicer during the
preceding calendar year (or relevant portion thereof) and of its
performance under this Agreement has been made under such officers'
supervision; and
(ii) to the best of such officers' knowledge, based on such review,
the Servicer has fulfilled all its obligations under this Agreement
throughout such period or, if there has been a Servicer Default, stating
that there has been a default and describing each such default.
SECTION 3.07. ANNUAL REGISTERED INDEPENDENT PUBLIC ACCOUNTING FIRM REPORT.
(a) The Servicer shall cause a registered independent public
accounting firm (which may also provide other services to the Servicer or the
Seller) to prepare, and the Servicer shall deliver to the Issuer, the PUCT, the
Trustee and each Rating Agency, on or before March 31 of each year, beginning
March 31, 2006, to and including the March 31 succeeding the retirement of all
Transition Bonds, a report addressed to the Servicer (the "Annual Accountant's
Report"), which may be included as part of the Servicer's customary auditing
activities, to the effect that such firm has performed certain procedures
related to financial matters in connection with the Servicer's compliance with
its obligations under this Agreement during the preceding calendar year (or, in
the case of the first Annual Accountant's Report, the period of time from the
Sale Date through December 31, 2005), identifying the results of such procedures
and including any exceptions noted. In the event such accounting firm requires
the Trustee or the Issuer to
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agree or consent to the procedures performed by such firm, the Issuer shall
direct the Trustee in writing to so agree; it being understood and agreed that
the Trustee shall deliver such letter of agreement or consent in conclusive
reliance upon the direction of the Issuer, and the Trustee shall not make any
independent inquiry or investigation as to, and shall have no obligation or
liability in respect of, the sufficiency, validity or correctness of such
procedures.
(b) The Annual Accountant's Report shall also indicate that the
accounting firm providing such report is independent of the Servicer within the
meaning of the Code of Professional Ethics of the American Institute of
Certified Public Accountants.
SECTION 3.08. TRANSITION PROPERTY DOCUMENTATION. To assure uniform quality
in servicing the Transition Property and to reduce administrative costs, the
Servicer shall keep on file, in accordance with its customary procedures, all
Transition Property Documentation, it being understood that the Servicer is
acting only as the servicing agent and custodian for the Issuer with respect to
the Transition Property Documentation.
SECTION 3.09. COMPUTER RECORDS; AUDITS OF DOCUMENTATION.
(a) Safekeeping. The Servicer shall maintain accurate and complete
accounts, records and computer systems pertaining to the Transition Property and
the Transition Property Documentation in accordance with its standard accounting
procedures and in sufficient detail to permit reconciliation between payments or
recoveries on (or with respect to) Transition Charges and the TC Collections
from time to time remitted to the Trustee pursuant to Section 5.11 and to enable
the Issuer to comply with this Agreement and the Indenture. The Servicer shall
conduct, or cause to be conducted, periodic audits of the Transition Property
Documentation held by it under this Agreement and of the related accounts,
records and computer systems, in such a manner as shall enable the Issuer and
the Trustee, as pledgee of the Issuer, to verify the accuracy of the Servicer's
record keeping. The Servicer shall promptly report to the Issuer, to the PUCT,
and to the Trustee any failure on the Servicer's part to hold the Transition
Property Documentation and maintain its accounts, records and computer systems
as herein provided and promptly take appropriate action to remedy any such
failure. Nothing herein shall be deemed to require an initial review or any
periodic review by the Issuer or the Trustee of the Transition Property
Documentation. The Servicer's duties to hold the Transition Property
Documentation on behalf of the Issuer set forth in this Section 3.09, to the
extent such Transition Property Documentation has not been previously
transferred to a successor Servicer, shall terminate three years after the
earlier of the date on which (i) the Servicer is succeeded by a successor
Servicer pursuant to the provisions of this Agreement or (ii) no Transition
Bonds of any Series are Outstanding.
(b) Maintenance of and Access to Records. The Servicer shall
maintain the Transition Property Documentation at ▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇,
▇▇▇▇▇▇▇, ▇▇▇▇▇ or at such other office as shall be specified to the Issuer, to
the PUCT and to the Trustee by written notice not later than 30 days prior to
any change in location. The Servicer shall permit the Issuer and the Trustee or
their respective duly authorized representatives, attorneys, agents or auditors
at any time during normal business hours to inspect, audit and make copies of
and abstracts from the Servicer's records regarding the Transition Property, the
Transition Charges and the Transition Property Documentation. The failure of the
Servicer to provide access to such information as a
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result of an obligation or applicable law (including PUCT Regulations)
prohibiting disclosure of information regarding customers shall not constitute a
breach of this Section 3.09(b).
(c) Release of Documents. Upon written instruction from the
Trustee in accordance with the Indenture, the Servicer shall release any
Transition Property Documentation to the Trustee, the Trustee's agent or the
Trustee's designee, as the case may be, and to the PUCT at such place or places
as the Trustee may designate, as soon as practicable.
SECTION 3.10. DEFENDING TRANSITION PROPERTY AGAINST CLAIMS. The Servicer
shall, subject to applicable law, institute any action or Proceeding necessary
to compel performance by each REP and each party to the Intercreditor Agreement
(and in the case of each REP at the earliest possible time) of any of their
respective obligations or duties under the Texas Electric Choice Plan, the
Financing Order or the Intercreditor Agreement with respect to the Transition
Property, and the Servicer agrees, subject to applicable law, to take such legal
or administrative actions, including defending against or instituting and
pursuing legal actions and appearing or testifying at hearings or similar
proceedings as may be reasonably necessary to block or overturn any attempts to
cause a repeal of, modification of, or supplement to, the Texas Electric Choice
Plan or the Financing Order. The costs of any such action shall be payable from
TC Collections as an Operating Expense (and shall not be deemed to constitute a
portion of the Servicing Fee) in accordance with the Indenture. The Servicer's
obligations pursuant to this Section 3.10 shall survive and continue
notwithstanding the fact that the payment of Operating Expenses pursuant to the
Indenture may be delayed (it being understood that the Servicer may be required
initially to advance its own funds to satisfy its obligations hereunder).
SECTION 3.11. OPINIONS OF COUNSEL. The Servicer shall deliver to the
Issuer, to the PUCT and to the Trustee:
(a) promptly after the execution and delivery of this Agreement
and of each amendment hereto, an Opinion of Counsel either:
(i) to the effect that, in the opinion of such counsel, all
filings, including filings with the PUCT and the Secretary of State of the
State of Texas pursuant to the Texas Electric Choice Plan and the UCC,
that are necessary to perfect the interests of each of the Issuer and the
Trustee in the Transition Property have been executed and filed and are in
full force and effect, and reciting the details of such filings or
referring to prior Opinions of Counsel in which such details are given, or
(ii) to the effect that, in the opinion of such counsel, no such
action shall be necessary to preserve and protect such interests; and
(b) within 90 days after the beginning of each calendar year
beginning with the first calendar year beginning more than three months after
the Sale Date, an Opinion of Counsel, dated as of a date during such 90-day
period, either:
(i) to the effect that, in the opinion of such counsel, all
filings, including filings with the PUCT and the Secretary of State of the
State of Texas pursuant to the Texas Electric Choice Plan and the UCC,
that are necessary to maintain the perfection of the interests of each of
the Issuer and the Trustee in the Transition Property have been
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executed and filed and are in full force and effect, and reciting the
details of such filings or referring to prior Opinions of Counsel in which
such details are given, or
(ii) to the effect that, in the opinion of such counsel, no such
action shall be necessary to preserve and protect such interest.
Each Opinion of Counsel referred to in clause (a) or (b) above shall specify any
action necessary (as of the date of such opinion) to be taken in the following
year to preserve and protect such interests.
ARTICLE IV
SERVICES RELATED TO TRANSITION CHARGE ADJUSTMENTS AND PBRAF ADJUSTMENTS
SECTION 4.01. TRANSITION CHARGE ADJUSTMENTS AND PBRAF ADJUSTMENTS. The
Servicer shall perform the calculations and take the actions relating to
adjusting the Transition Charges and PBRAFs as set forth in the Issuer Annex at
the time and in the manner set forth therein.
ARTICLE V
THE SERVICER
SECTION 5.01. REPRESENTATIONS AND WARRANTIES OF THE SERVICER. The Servicer
makes the following representations and warranties as of the Sale Date, on which
the Issuer has relied in acquiring Transition Property. The representations and
warranties shall survive the execution and delivery of this Agreement, the sale
of any of the Transition Property to the Issuer and the pledge thereof to the
Trustee pursuant to the Indenture.
(a) Organization and Good Standing. The Servicer is a limited
liability company duly organized, validly existing and in good standing under
the laws of the State of Texas, with the limited liability company power and
authority to own its properties and to conduct its business as such properties
are currently owned and such business is presently conducted and to execute,
deliver and carry out the terms of this Agreement and the Intercreditor
Agreement and has the power, authority and legal right to service the Transition
Property.
(b) Due Qualification. The Servicer is duly qualified to do business
and is in good standing, and has obtained all necessary licenses and approvals,
in all jurisdictions in which the ownership or lease of property or the conduct
of its business (including the servicing of the Transition Property as required
by this Agreement and the Intercreditor Agreement) requires such qualifications,
licenses or approvals (except where the failure to so qualify would not be
reasonably likely to have a material adverse effect on the Servicer's business,
operations, assets, revenues, properties or prospects or adversely affect the
servicing of the Transition Property).
(c) Power and Authority. The Servicer has the limited liability
company or corporate, as the case may be, power and authority to execute and
deliver this Agreement and the Intercreditor Agreement and to carry out the
terms of each; and the execution, delivery
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and performance of this Agreement and the Intercreditor Agreement have been duly
authorized by the Servicer by all necessary limited liability company or
corporate, as the case may be, action.
(d) Binding Obligation. This Agreement and the Intercreditor
Agreement both constitute legal, valid and binding obligations of the Servicer
enforceable against the Servicer in accordance with their terms subject to
applicable bankruptcy, receivership, insolvency, reorganization, moratorium or
other laws affecting creditors' rights generally from time to time in effect and
to general principles of equity (regardless of whether considered in a court
proceeding in equity or at law).
(e) No Violation. The consummation of the transactions
contemplated by this Agreement and the Intercreditor Agreement (to the extent
applicable to the Servicer's responsibilities thereunder) and the fulfillment of
the terms of each will not conflict with, result in any breach of any of the
terms and provisions of, or constitute (with or without notice or lapse of time)
a default under, the limited liability company agreement or articles of
incorporation or by-laws, as the case may be, of the Servicer, or any material
agreement to which the Servicer is a party or by which it is bound or result in
the creation or imposition of any Lien upon any of its properties pursuant to
the terms of any such agreement (other than any Lien that may be granted under
the Basic Documents or any Lien created pursuant to Section 39.909 of the Texas
Electric Choice Plan); or violate any law or any existing order, rule or
regulation applicable to the Servicer of any court or of any federal or State
regulatory body, administrative agency or other governmental instrumentality
having jurisdiction over the Servicer or its properties.
(f) Approvals. No approval, authorization, consent, order or other
action of, or filing with, any court, federal or State regulatory body,
administrative agency or other governmental instrumentality is required in
connection with the execution and delivery by the Servicer of this Agreement or
the Intercreditor Agreement, the performance by the Servicer of the transactions
contemplated hereby or thereby or the fulfillment by the Servicer of the terms
of each, except those that have been obtained or made or that are required by
this Agreement to be made in the future by the Servicer, including the Issuance
Advice Letter, filings with the PUCT for adjusting Transition Charges and PBRAFs
pursuant to Section 4.01 and the Issuer Annex and filings with the Secretary of
State of the State of Texas under the Texas Electric Choice Plan and Article 9
of the UCC.
(g) No Proceedings. Except as disclosed by the Servicer on
Schedule A hereto, there are no Proceedings pending or, to the Servicer's
knowledge, threatened before any court, federal or State regulatory body,
administrative agency or other governmental instrumentality having jurisdiction
over the Servicer or its properties:
(i) asserting the invalidity of this Agreement or any of the other
Basic Documents;
(ii) seeking any determination or ruling that might materially and
adversely affect the Transition Property or the performance by the
Servicer of its obligations under, or the validity or enforceability
against the Servicer of, this Agreement;
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(iii) relating to the Servicer and which might materially and
adversely affect the federal income tax or State income, gross receipts or
franchise tax attributes of the Transition Property or the Transition
Bonds; or
(iv) seeking to prevent the issuance of the Transition Bonds or the
consummation of any of the transactions contemplated by this Agreement or
any of the other Basic Documents.
(h) Reports and Certificates. Each report and certificate
delivered in connection with any filing made to the PUCT by the Servicer on
behalf of the Issuer with respect to Transition Charges, Transition Charge
Adjustments or PBRAF Adjustments will be true and correct in all material
respects; provided, however, that to the extent any such report or certificate
is based in part upon or contains assumptions, forecasts or other predictions of
future events, the representation and warranty of the Servicer with respect
thereto will be limited to the representation and warranty that such
assumptions, forecasts or other predictions of future events are reasonable
based upon historical performance.
SECTION 5.02. INDEMNITIES OF THE SERVICER; RELEASE OF CLAIMS.
(a) THE SERVICER SHALL BE LIABLE IN ACCORDANCE HEREWITH ONLY TO
THE EXTENT OF THE OBLIGATIONS SPECIFICALLY UNDERTAKEN BY THE SERVICER UNDER THIS
AGREEMENT AND THE INTERCREDITOR AGREEMENT.
(b) THE SERVICER SHALL INDEMNIFY THE ISSUER AND THE TRUSTEE (FOR
ITSELF AND ON BEHALF OF THE TRANSITION BONDHOLDERS) AND EACH OF THEIR RESPECTIVE
TRUSTEES, MEMBERS, MANAGERS, OFFICERS, DIRECTORS, EMPLOYEES AND AGENTS FOR, AND
DEFEND AND HOLD HARMLESS EACH SUCH PERSON FROM AND AGAINST, ANY AND ALL LOSSES
THAT MAY BE IMPOSED UPON, INCURRED BY OR ASSERTED AGAINST ANY SUCH PERSON AS A
RESULT OF:
(I) THE SERVICER'S WILLFUL MISCONDUCT, BAD FAITH OR NEGLIGENCE IN
THE PERFORMANCE OF ITS DUTIES OR OBSERVANCE OF ITS COVENANTS UNDER THIS
AGREEMENT OR THE SERVICER'S RECKLESS DISREGARD OF ITS OBLIGATIONS AND
DUTIES UNDER THIS AGREEMENT OR THE INTERCREDITOR AGREEMENT;
(II) THE SERVICER'S BREACH OF ANY OF ITS REPRESENTATIONS OR
WARRANTIES IN THIS AGREEMENT OR THE INTERCREDITOR AGREEMENT; OR
(III) LITIGATION AND RELATED EXPENSES RELATING TO ITS STATUS AND
OBLIGATIONS AS SERVICER (OTHER THAN ANY PROCEEDINGS THE SERVICER IS
REQUIRED TO INSTITUTE UNDER THIS AGREEMENT);
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PROVIDED, HOWEVER, THAT THE SERVICER SHALL NOT BE LIABLE FOR ANY LOSSES
RESULTING FROM THE BAD FAITH, WILLFUL MISCONDUCT OR NEGLIGENCE OF ANY PERSON
INDEMNIFIED PURSUANT TO THIS SECTION 5.02 (EACH, AN "INDEMNIFIED PERSON") OR
RESULTING FROM A BREACH OF A REPRESENTATION OR WARRANTY MADE BY SUCH INDEMNIFIED
PERSON TO THE SERVICER IN ANY BASIC DOCUMENT THAT GIVES RISE TO THE SERVICER'S
BREACH.
(c) PROMPTLY AFTER RECEIPT BY AN INDEMNIFIED PERSON OF WRITTEN
NOTICE OF ITS INVOLVEMENT IN ANY ACTION, PROCEEDING OR INVESTIGATION, SUCH
INDEMNIFIED PERSON SHALL, IF A CLAIM FOR INDEMNIFICATION IN RESPECT THEREOF IS
TO BE MADE AGAINST THE SERVICER UNDER THIS SECTION 5.02, NOTIFY THE SERVICER IN
WRITING OF SUCH INVOLVEMENT. FAILURE BY AN INDEMNIFIED PERSON TO SO NOTIFY THE
SERVICER SHALL RELIEVE THE SERVICER FROM THE OBLIGATION TO INDEMNIFY AND HOLD
HARMLESS SUCH INDEMNIFIED PERSON UNDER THIS SECTION 5.02 ONLY TO THE EXTENT THAT
THE SERVICER SUFFERS ACTUAL PREJUDICE AS DETERMINED BY A COURT OF COMPETENT
JURISDICTION AS A RESULT OF SUCH FAILURE. WITH RESPECT TO ANY ACTION, PROCEEDING
OR INVESTIGATION BROUGHT BY A THIRD PARTY FOR WHICH INDEMNIFICATION MAY BE
SOUGHT BY AN INDEMNIFIED PERSON UNDER THIS SECTION 5.02, THE SERVICER SHALL BE
ENTITLED TO ASSUME THE DEFENSE OF ANY SUCH ACTION, PROCEEDING OR INVESTIGATION
UNLESS (X) SUCH ACTION, PROCEEDING OR INVESTIGATION EXPOSES THE INDEMNIFIED
PERSON TO A RISK OF CRIMINAL LIABILITY OR FORFEITURE, (Y) THE SERVICER AND SUCH
INDEMNIFIED PERSON HAVE A CONFLICT OF INTEREST IN THEIR RESPECTIVE DEFENSES OF
SUCH ACTION, PROCEEDING OR INVESTIGATION OR (Z) THERE EXISTS AT THE TIME THE
SERVICER WOULD ASSUME SUCH DEFENSE AN ONGOING SERVICER DEFAULT. UPON ASSUMPTION
BY THE SERVICER OF THE DEFENSE OF ANY SUCH ACTION, PROCEEDING OR INVESTIGATION,
THE INDEMNIFIED PERSON SHALL HAVE THE RIGHT TO PARTICIPATE IN SUCH ACTION OR
PROCEEDING AND TO RETAIN ITS OWN COUNSEL (INCLUDING LOCAL COUNSEL), AND THE
SERVICER SHALL BEAR THE REASONABLE FEES, COSTS AND EXPENSES OF SUCH SEPARATE
COUNSEL. THE INDEMNIFIED PERSON SHALL NOT SETTLE OR COMPROMISE OR CONSENT TO THE
ENTRY OF ANY JUDGMENT WITH RESPECT TO ANY PENDING OR THREATENED CLAIM, ACTION,
SUIT OR PROCEEDING IN RESPECT OF WHICH INDEMNIFICATION MAY BE SOUGHT UNDER THIS
SECTION 5.02 (WHETHER OR NOT THE SERVICER IS AN ACTUAL OR POTENTIAL PARTY TO
SUCH CLAIM OR ACTION) UNLESS THE SERVICER AGREES IN WRITING TO SUCH SETTLEMENT,
COMPROMISE OR CONSENT AND SUCH SETTLEMENT, COMPROMISE OR CONSENT INCLUDES AN
UNCONDITIONAL RELEASE OF THE SERVICER FROM ALL LIABILITY ARISING OUT OF SUCH
CLAIM, ACTION, SUIT OR PROCEEDING.
(d) THE SERVICER SHALL INDEMNIFY THE TRUSTEE AND ITS RESPECTIVE
TRUSTEES, OFFICERS, DIRECTORS, EMPLOYEES AND AGENTS
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FOR, AND DEFEND AND HOLD HARMLESS EACH SUCH PERSON FROM AND AGAINST, ANY AND ALL
LOSSES THAT MAY BE IMPOSED UPON, INCURRED BY OR ASSERTED AGAINST ANY SUCH PERSON
AS A RESULT OF THE ACCEPTANCE OR PERFORMANCE OF THE TRUSTS AND DUTIES CONTAINED
HEREIN AND IN THE INDENTURE, EXCEPT TO THE EXTENT THAT ANY SUCH LOSS (I) SHALL
BE DUE TO THE WILLFUL MISCONDUCT, BAD FAITH OR NEGLIGENCE OF THE TRUSTEE OR (II)
SHALL ARISE FROM THE TRUSTEE'S BREACH OF ANY OF ITS REPRESENTATIONS OR
WARRANTIES SET FORTH IN THE INDENTURE; PROVIDED, HOWEVER, THAT THE FOREGOING
INDEMNITY IS EXTENDED TO THE TRUSTEE SOLELY IN ITS INDIVIDUAL CAPACITY AND NOT
FOR THE BENEFIT OF THE TRANSITION BONDHOLDERS OR ANY OTHER PERSON. SUCH AMOUNTS
WITH RESPECT TO THE TRUSTEE SHALL BE DEPOSITED AND DISTRIBUTED IN ACCORDANCE
WITH THE INDENTURE.
(e) THE SERVICER'S INDEMNIFICATION OBLIGATIONS UNDER SECTION 5.02(B)
AND (D) FOR EVENTS OCCURRING PRIOR TO THE REMOVAL OR RESIGNATION OF THE TRUSTEE
OR THE TERMINATION OF THIS AGREEMENT SHALL SURVIVE THE RESIGNATION OR REMOVAL OF
THE TRUSTEE OR THE TERMINATION OF THIS AGREEMENT AND SHALL INCLUDE REASONABLE
COSTS, FEES AND EXPENSES OF INVESTIGATION AND LITIGATION (INCLUDING THE ISSUER'S
AND THE TRUSTEE'S REASONABLE ATTORNEYS' FEES AND EXPENSES).
(f) EXCEPT TO THE EXTENT EXPRESSLY PROVIDED FOR IN THIS AGREEMENT,
THE SALE AGREEMENT OR THE FORMATION DOCUMENTS (INCLUDING THE SERVICER'S CLAIMS
WITH RESPECT TO THE SERVICING FEES AND THE SELLER'S CLAIM FOR PAYMENT OF THE
PURCHASE PRICE OF TRANSITION PROPERTY), THE SERVICER HEREBY RELEASES AND
DISCHARGES THE ISSUER (INCLUDING ITS MEMBERS, MANAGERS, EMPLOYEES AND AGENTS, IF
ANY), AND THE TRUSTEE (INCLUDING ITS RESPECTIVE OFFICERS, DIRECTORS AND AGENTS)
(COLLECTIVELY, THE "RELEASED PARTIES") FROM ANY AND ALL ACTIONS, CLAIMS AND
DEMANDS WHATSOEVER, WHICH THE SERVICER, IN ITS CAPACITY AS SERVICER, SHALL OR
MAY HAVE AGAINST ANY SUCH PERSON RELATING TO THE TRANSITION PROPERTY OR THE
SERVICER'S ACTIVITIES WITH RESPECT THERETO OTHER THAN ANY ACTIONS, CLAIMS AND
DEMANDS ARISING OUT OF THE WILLFUL MISCONDUCT, BAD FAITH OR NEGLIGENCE OF THE
RELEASED PARTIES.
(g) THE SERVICER AND THE ISSUER HEREBY ACKNOWLEDGE THAT,
NOTWITHSTANDING ANYTHING HEREIN TO THE CONTRARY, THE TRUSTEE IS A THIRD-PARTY
BENEFICIARY OF THIS SECTION 5.02 AND IS ENTITLED TO THE BENEFITS OF THE
INDEMNITY FROM THE SERVICER CONTAINED HEREIN AND TO BRING ANY ACTION TO ENFORCE
SUCH INDEMNIFICATION DIRECTLY AGAINST THE SERVICER.
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(h) THE SERVICER SHALL INDEMNIFY THE PUCT (FOR THE BENEFIT OF
CUSTOMERS), THE ISSUER, THE TRUSTEE (FOR ITSELF AND ON BEHALF OF THE TRANSITION
BONDHOLDERS), AND EACH OF THEIR RESPECTIVE TRUSTEES, MEMBERS, MANAGERS,
OFFICERS, DIRECTORS, EMPLOYEES AND AGENTS FOR, AND DEFEND AND HOLD HARMLESS EACH
SUCH PERSON FROM AND AGAINST, ANY AND ALL LOSSES THAT MAY BE IMPOSED UPON,
INCURRED BY OR ASSERTED AGAINST ANY SUCH PERSON AS A RESULT OF ANY INCREASE IN
THE SERVICING FEE THAT BECOMES PAYABLE PURSUANT TO SECTION 5.07(B) OF THIS
AGREEMENT AS A RESULT OF A DEFAULT RESULTING FROM THE SERVICER'S WILLFUL
MISCONDUCT, BAD FAITH OR NEGLIGENCE IN PERFORMANCE OF ITS DUTIES OR OBSERVANCE
OF ITS COVENANTS UNDER THIS AGREEMENT. THE INDEMNIFICATION OBLIGATION SET FORTH
IN THIS PARAGRAPH MAY BE ENFORCED BY THE PUCT BUT IS NOT ENFORCEABLE BY ANY REP
OR ANY CUSTOMER. ANY INDEMNITY PAYMENTS MADE TO THE PUCT UNDER THIS PARAGRAPH
FOR THE BENEFIT OF CUSTOMERS SHALL BE REMITTED TO THE TRUSTEE PROMPTLY FOR
DEPOSIT INTO THE COLLECTION ACCOUNT.
SECTION 5.03. MERGER OR CONSOLIDATION OF, OR ASSUMPTION OF THE OBLIGATIONS
OF, THE SERVICER. Any Person:
(a) into which the Servicer may be merged, converted or consolidated
and which succeeds to all or substantially all of the electric transmission and
distribution business of the Servicer (or, if the Servicer's transmission and
distribution business is split, which provides distribution service directly to
a majority of the retail electric customers in the Seller's certificated service
area as it existed on May 1, 1999),
(b) which results from the division of the Servicer into two or more
Persons and which succeeds to all or substantially all of the electric
transmission and distribution business of the Servicer (or, if the Servicer's
transmission and distribution business is split, which provides distribution
service directly to a majority of the retail electric customers in the Seller's
certificated service area as it existed on May 1, 1999),
(c) which may result from any merger, conversion or consolidation to
which the Servicer shall be a party and which succeeds to all or substantially
all of the electric transmission and distribution business of the Servicer (or,
if the Servicer's transmission and distribution business is split, which
provides distribution service directly to a majority of the retail electric
customers in the Seller's certificated service area as it existed on May 1,
1999),
(d) which may purchase or otherwise succeed to the properties and
assets of the Servicer substantially as a whole and which purchases or otherwise
succeeds to all or substantially all of the electric transmission and
distribution business of the Servicer (or, if the Servicer's transmission and
distribution business is split, which provides distribution service directly to
a majority of the retail electric customers in the Seller's certificated service
area as it existed on May 1, 1999), or
15
(e) which may otherwise purchase or succeed to all or substantially
all of the electric transmission and distribution business of the Servicer (or,
if the Servicer's transmission and distribution business is split, which
provides distribution service directly to a majority of the retail electric
customers in the Seller's certificated service area as it existed on May 1,
1999),
which Person in any of the foregoing cases executes an agreement of assumption
to perform every obligation of the Servicer under this Agreement, shall be the
successor to the Servicer under this Agreement without the execution or filing
of any document or any further act by any of the parties to this Agreement;
provided, however, that:
(i) immediately after giving effect to such transaction, the
representations and warranties made pursuant to Section 5.01 shall be true
and correct and no Servicer Default, and no event that, after notice or
lapse of time, or both, would become a Servicer Default, shall have
occurred and be continuing;
(ii) the Servicer shall have delivered to the Issuer, the PUCT and
the Trustee an Officers' Certificate and an opinion of Independent counsel
each stating that such consolidation, merger, conversion or succession and
such agreement of assumption comply with this Section 5.03 and that all
conditions precedent, if any, provided for in this Agreement relating to
such transaction have been complied with;
(iii) the Servicer shall have delivered to the Issuer, the PUCT, the
Trustee and the Rating Agencies an Opinion of Counsel either
(A) stating that, in the opinion of such counsel, all filings
to be made by the Servicer, including filings with the PUCT pursuant
to the Texas Electric Choice Plan and the UCC, that are necessary
fully to preserve and protect the interests of each of the Issuer
and the Trustee in the Transition Property have been executed and
filed and are in full force and effect, and reciting the details of
such filings or
(B) stating that, in the opinion of such counsel, no such
action is necessary to preserve and protect such interests;
(iv) the Rating Agencies shall have received prior written notice
of such transaction and, if such Person is not an Affiliate of CenterPoint
Houston, the Rating Agency Condition shall be satisfied; and
(v) the Servicer shall have delivered to the Issuer, the PUCT, the
Trustee and the Rating Agencies an opinion of independent tax counsel (as
selected by, and in form and substance satisfactory to, the Servicer, and
which may be based on a ruling from the Internal Revenue Service) to the
effect that, for federal income tax purposes, such transaction will not
result in a material adverse federal income tax consequence to the Issuer
or the Transition Bondholders.
The Servicer shall not consummate any transaction referred to in clauses (a),
(b), (c), (d) or (e) above except upon execution of the above-described
agreement of assumption and compliance with clauses (i), (ii), (iii), (iv) and
(v) above. When any Person acquires the properties and assets
16
of the Servicer substantially as a whole or otherwise becomes the successor to
the Servicer in accordance with the terms of this Section 5.03, then upon the
satisfaction of all of the other conditions of this Section 5.03, the Servicer
shall automatically and without further notice be released from its obligations
hereunder.
SECTION 5.04. ASSIGNMENT OF THE SERVICER'S OBLIGATIONS. Upon written
notice to the Trustee, the PUCT and the Rating Agencies, the Servicer may assign
a portion of its obligations hereunder to an assignee (A) in accordance with the
Intercreditor Agreement with respect to the obligations to maintain and process
any account into which initial collections may be deposited and process payments
in respect of Transition Charges or (B) subject to the satisfaction of Section
5.03.
SECTION 5.05. LIMITATION ON LIABILITY OF THE SERVICER AND OTHERS. The
Servicer shall not be liable to the Issuer, its managers, the Transition
Bondholders, the Trustee or any other person, except as provided under this
Agreement, for any action taken or for refraining from the taking of any action
pursuant to this Agreement or for errors in judgment; provided, however, that
this provision shall not protect the Servicer against any liability that would
otherwise be imposed by reason of willful misconduct, bad faith or negligence in
the performance of its duties or by reason of reckless disregard of its
obligations and duties under this Agreement or the Intercreditor Agreement. The
Servicer and any director or officer or employee or agent of the Servicer may
rely in good faith on the advice of counsel reasonably acceptable to the Trustee
or on any document of any kind, reasonably believed to be genuine and to have
been signed by the proper party respecting any matters arising under this
Agreement.
Except as provided in this Agreement (including but not limited to Section
3.10 of this Agreement), the Servicer shall not be under any obligation to
appear in, prosecute or defend any Proceeding that is not directly related to
one of the Servicer's enumerated duties in this Agreement or related to its
obligation to pay indemnification, and that in its reasonable opinion may cause
it to incur any expense or liability; provided, however, that the Servicer may,
in respect of any Proceeding, undertake any reasonable action that is not
specifically identified in this Agreement as a duty of the Servicer but that the
Servicer may deem necessary or desirable in respect of this Agreement and the
rights and duties of the parties to this Agreement and the interests of the
Transition Bondholders under this Agreement. The Servicer's costs and expenses
incurred in connection with any such Proceeding shall be payable from TC
Collections as an Operating Expense (and shall not be deemed to constitute a
portion of the Servicing Fee) in accordance with the Indenture. The Servicer's
obligations pursuant to this Section 5.05 shall survive and continue
notwithstanding the fact that the payment of Operating Expenses pursuant to the
Indenture may be delayed (it being understood that the Servicer may be required
initially to advance its own funds to satisfy its obligations hereunder).
SECTION 5.06. CENTERPOINT HOUSTON NOT TO RESIGN AS SERVICER. Subject to
the provisions of Sections 5.03 and 5.04, CenterPoint Houston shall not resign
from the obligations and duties imposed on it as Servicer under this Agreement
unless the Servicer delivers to the Issuer, the Trustee, the PUCT and each
Rating Agency written notice of such resignation at the earliest practicable
time and, concurrently therewith or promptly thereafter, an opinion of
Independent legal counsel that the Servicer's performance of its duties under
this Agreement shall no longer be permissible under applicable law. No such
resignation shall
17
become effective until a successor Servicer shall have assumed the servicing
obligations and duties hereunder of the Servicer in accordance with Section
6.04.
SECTION 5.07. SERVICING FEE. (a) The Issuer agrees to pay the Servicer on
each Payment Date, solely to the extent amounts are available therefor in
accordance with the Indenture, the Servicing Fee with respect to all Series of
Transition Bonds. For so long as:
(i) CenterPoint Houston or one of its Affiliates is the Servicer,
(ii) a successor to CenterPoint Houston or one of its Affiliates is
the Servicer due to the operation of the provisions of Section 5.03, or
(iii) any Person is the successor Servicer hereunder pursuant to the
provisions of Section 5.04 if the predecessor Servicer was CenterPoint
Houston or one of its Affiliates,
the amount of the Servicing Fee paid to the Servicer annually shall equal 0.05%
of the Transition Bond Balance on the Series Issuance Date and shall be prorated
based on the fraction of a calendar year during which the Servicer provides any
of the services set forth in this Agreement).
(b) In the event that a successor Servicer not an Affiliate of
CenterPoint Houston is appointed in accordance with Section 6.04, the amount of
Servicing Fee paid to the Servicer annually shall be agreed upon by the
successor Servicer and the Trustee but shall in no event exceed 0.60% of the
Transition Bond Balance on the Series Issuance Date without the consent of the
PUCT and shall be prorated based on the fraction of a calendar year during which
the successor Servicer provides any of the services set forth in this Agreement.
The foregoing fees set forth in paragraph (a) above and this paragraph (b)
constitute a fair and reasonable price for the obligations to be performed by
the Servicer. The Servicer and any successor Servicer agrees to pay from amounts
received as the Servicing Fee all fees due and owing pursuant to the
Intercreditor Agreement, and neither the Servicer nor any successor Servicer
shall seek or be entitled to any other or additional reimbursement therefor. The
Trustee shall not be responsible or liable for the Servicing Fee or any fees
arising from the Intercreditor Agreement or for any increase or differential in
such fees.
(c) The Servicer will be entitled to retain any interest earnings
on such TC Collections prior to remittance to the Collection Account for the
applicable Series; provided, however, that if the Servicer fails to remit the TC
Collections to the Trustee on or before the second business day after the
Servicer received such TC Collections on more than three occasions during the
period that the Transition Bonds of a Series are outstanding, then thereafter
the Servicer will be required to pay the Trustee any actual interest earned on
TC Collections received by the Servicer and invested by the Servicer during each
collection period prior to remittance to the Trustee for so long as that Series
of Transition Bonds remains outstanding. All late payment charges will be
remitted to the Trustee.
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SECTION 5.08. SERVICER EXPENSES. Except as otherwise expressly provided in
Sections 3.10 and 5.05, the Servicer shall be required to pay all expenses
incurred by it in connection with its activities hereunder and under the
Intercreditor Agreement, including fees and disbursements of independent
accountants and counsel, taxes imposed on the Servicer and expenses incurred in
connection with reports to Transition Bondholders.
SECTION 5.09. APPOINTMENTS. The Servicer, with written notice to the
Trustee and the PUCT, may at any time appoint a subservicer or agent to perform
all or any portion of its obligations as Servicer hereunder; provided, however,
that the Rating Agency Condition shall have been satisfied in connection
therewith; provided further that the Servicer shall remain obligated and be
liable to the Issuer for the servicing and administering of the Transition
Property in accordance with the provisions hereof without diminution of such
obligation and liability by virtue of the appointment of such subservicer or
agent and to the same extent and under the same terms and conditions as if the
Servicer alone were servicing and administering the Transition Property. The
fees and expenses of the subservicer or agent shall be as agreed between the
Servicer and its subservicer or agent from time to time, and none of the Issuer,
the Trustee or the Transition Bondholders shall have any responsibility
therefor. Any such appointment shall not constitute a Servicer resignation under
Section 5.06. The Designated Account Holder shall constitute a subservicer for
purposes of this Section 5.09.
SECTION 5.10. NO SERVICER ADVANCES. The Servicer shall not make any
advances of interest on or principal of the Transition Bonds.
SECTION 5.11. REMITTANCES. The Servicer will make periodic payments on
account of TC Collections to the Trustee for deposit in the Collection Account
for the applicable series of Transition Bonds. The Servicer will remit TC
Collections to the Trustee on a daily basis, which daily remittance shall be
made as soon as reasonably practicable but in no event later than the second
Business Day after the Servicer receives those TC Collections.
SECTION 5.12. PROTECTION OF TITLE. The Servicer shall execute and file all
filings, including filings with the Secretary of State of the State of Texas
pursuant to the Texas Electric Choice Plan and Article 9 of the UCC, and cause
to be executed and filed all filings, all in such manner and in such places as
may be required by law fully to preserve, maintain and protect the interests of
the Issuer and the Trustee in the Transition Property, including all filings
required under the Texas Electric Choice Plan and Article 9 of the UCC relating
to the transfer of the ownership or security interest in the Transition Property
by the Seller to the Issuer or any security interest granted by the Issuer in
the Transition Property. The Servicer shall deliver (or cause to be delivered)
to the Issuer, the PUCT and the Trustee file-stamped copies of, or filing
receipts for, any document filed as provided above, as soon as available
following such filing.
ARTICLE VI
SERVICER DEFAULT
SECTION 6.01. SERVICER DEFAULT. If any one of the following events (a
"Servicer Default") occurs and is continuing:
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(a) any failure by the Servicer to remit to the Trustee, on behalf
of the Issuer, any required remittance by the date that such remittance must be
made that continues unremedied for a period of five Business Days; or
(b) any failure by the Servicer duly to observe or perform in any
material respect any other covenant or agreement of the Servicer set forth in
this Agreement (other than as provided in Section 6.01(a) or (c)) or any other
Basic Document to which it is a party in such capacity, which failure
(i) materially and adversely affects the Transition Property or
the timely collection of the Transition Charges or the rights of the
Trustee or the Transition Bondholders, and
(ii) continues unremedied for a period of 60 days after the earlier
to occur of (A) the Trustee, the PUCT or the Issuer delivers written
notice of such failure to the Servicer or (B) an officer of the Servicer
discovers such failure;
(c) any failure by the Servicer duly to perform its obligations
under Section 7 of Annex 1 to this Agreement in the time and manner set forth
therein, which failure continues unremedied for a period of five business days;
(d) any representation or warranty made by the Servicer in this
Agreement or any Basic Document proves to have been incorrect when made, which
has a material adverse effect on the Transition Property or the Issuer's
ownership interest therein, the security interest of the Trustee in the
Transition Property, the Issuer, the Transition Bondholders or the investment of
the Transition Bondholders in the Transition Bonds, and which material adverse
effect continues unremedied for a period of 60 days after the date on which
written notice thereof shall have been given to the Servicer (with a copy to the
Trustee) by the Issuer, the PUCT or the Trustee or after discovery of such
failure by an officer of the Servicer, as the case may be; or
(e) an Insolvency Event occurs with respect to the Servicer;
then, so long as the Servicer Default shall not have been remedied, and in no
other circumstances, the Trustee may, or shall upon the written instruction of
the Majority Holders, terminate all the rights and obligations (other than the
indemnification obligations set forth in Section 5.02 hereof and the obligation
under Section 6.04 to continue performing its functions as Servicer until a
successor Servicer is appointed) of the Servicer under this Agreement by notice
then given in writing to the Servicer (a "Termination Notice") and the Trustee
shall comply with the provisions of Section 5 of the Intercreditor Agreement.
The Servicer shall notify each Rating Agency promptly upon the Servicer's
receipt of a Termination Notice.
In addition, upon a Servicer Default, the Issuer and the Trustee shall be
entitled to (x) apply to a state district court located in ▇▇▇▇▇▇ County, Texas,
for sequestration and payment to the Trustee of revenues arising with respect to
the Transition Property, (y) foreclose on or otherwise enforce the Lien on and
security interests in the Transition Property and (z) apply to the PUCT for an
order that amounts arising from the Transition Charges be transferred to a
separate account for the benefit of the Transition Bondholders, in accordance
with the Texas Electric Choice Plan.
20
On or after the receipt by the Servicer of a Termination Notice, all
authority and power of the Servicer under this Agreement, whether with respect
to the Transition Property, the related Transition Charges or otherwise, shall,
upon appointment of a successor Servicer pursuant to Section 6.04 and pursuant
to the provisions of the Intercreditor Agreement, without further action, pass
to and be vested in such successor Servicer and, without limitation, the Trustee
is hereby authorized and empowered to execute and deliver, on behalf of the
predecessor Servicer, as attorney-in-fact or otherwise, any and all documents
and other instruments, and to do or accomplish all other acts or things
necessary or appropriate to effect the purposes of such Termination Notice,
whether to complete the transfer of the Transition Property Documentation and
related documents, or otherwise. The predecessor Servicer shall cooperate with
the successor Servicer, the Trustee and the Issuer in effecting the termination
of the responsibilities and rights of the predecessor Servicer under this
Agreement and the Intercreditor Agreement, including the transfer to the
successor Servicer for administration by it of all cash amounts that shall at
the time be held by the predecessor Servicer for remittance, or shall thereafter
be received by it with respect to the Transition Property or the related
Transition Charges. As soon as practicable after receipt by the Servicer of such
Termination Notice, the Servicer shall deliver the Transition Property
Documentation to the successor Servicer. All reasonable costs and expenses
(including attorneys' fees and expenses) incurred in connection with
transferring the Transition Property Documentation to the successor Servicer and
amending this Agreement or the Intercreditor Agreement to reflect such
succession as Servicer pursuant to this Section shall be paid by the predecessor
Servicer upon presentation of documentation of such costs and expenses. All
costs and expenses (including attorneys' fees and expenses) incurred in
connection with transferring the Transition Property Documentation to the
successor Servicer and amending this Agreement or the Intercreditor Agreement to
reflect the succession as Servicer other than pursuant to this Section shall be
paid by the party incurring such costs and expenses. Termination of CenterPoint
Houston's rights as a Servicer shall not terminate CenterPoint Houston's rights
or obligations in its individual capacity under the Sale Agreement or the
Intercreditor Agreement (except rights thereunder deriving from its rights as
the Servicer hereunder).
SECTION 6.02. NOTICE OF SERVICER DEFAULT. The Servicer shall deliver to
the Issuer, to the Trustee, to the PUCT, and to each Rating Agency promptly
after having obtained actual knowledge thereof, but in no event later than two
Business Days thereafter, written notice in an Officers' Certificate of any
event or circumstance which, with the giving of notice or the passage of time,
would become a Servicer Default under Section 6.01.
SECTION 6.03. WAIVER OF PAST DEFAULTS. The Trustee, with the written
consent of the Majority Holders, may waive in writing in whole or in part any
default by the Servicer in the performance of its obligations hereunder and its
consequences, except a default in making any required remittances to the Trustee
of TC Collections from Transition Property in accordance with Section 5.11 of
this Agreement. Upon any such waiver of a past default, such default shall cease
to exist, and any Servicer Default arising therefrom shall be deemed to have
been remedied for every purpose of this Agreement. No such waiver shall extend
to any subsequent or other default or impair any right consequent thereto.
SECTION 6.04. APPOINTMENT OF SUCCESSOR.
21
(a) Upon the Servicer's receipt of a Termination Notice pursuant
to Section 6.01 or the Servicer's resignation in accordance with the terms of
this Agreement, the Servicer shall continue to perform its functions as Servicer
under this Agreement and shall be entitled to receive the requisite portion of
the Servicing Fee, until a successor Servicer shall have assumed in writing the
obligations of the Servicer hereunder as described below. In the event of the
Servicer's removal or resignation hereunder, the Trustee at the written
direction and with the consent of the Majority Holders shall appoint a successor
Servicer, and the successor Servicer shall accept its appointment by a written
assumption in form acceptable to the Issuer and the Trustee. In no event shall
the Trustee be liable for its appointment of a successor Servicer appointed with
due care. If, within 30 days after the delivery of the Termination Notice, a new
Servicer shall not have been appointed and accepted such appointment, the
Trustee may petition the PUCT or a court of competent jurisdiction to appoint a
successor Servicer under this Agreement. A Person shall qualify as a successor
Servicer only if:
(i) such Person is permitted under PUCT Regulations to perform the
duties of the Servicer pursuant to the Texas Electric Choice Plan, the
Financing Order and this Agreement,
(ii) either (A) the PUCT has approved the appointment of the
successor Servicer or (B) 45 days have lapsed since the PUCT received
notice of appointment of the successor Servicer and the PUCT has neither
approved nor disapproved that appointment,
(iii) the Rating Agency Condition shall have been satisfied, and
(iv) such Person enters into a servicing agreement with the Issuer
having substantially the same provisions as this Agreement and into the
Intercreditor Agreement (as Additional TC Servicer).
(b) Upon appointment, the successor Servicer shall be the
successor in all respects to the predecessor Servicer under this Agreement and
shall be subject to all the responsibilities, duties and liabilities arising
thereafter relating thereto placed on the predecessor Servicer and shall be
entitled to the Servicing Fee and all the rights granted to the predecessor
Servicer by the terms and provisions of this Agreement.
(c) The successor Servicer may not resign unless it is prohibited
from serving as such by law.
SECTION 6.05. COOPERATION WITH SUCCESSOR. The predecessor Servicer
covenants and agrees with the Issuer that it will, on an ongoing basis,
cooperate with the successor Servicer and provide whatever information is, and
take whatever actions are, reasonably necessary to assist the successor Servicer
in performing its obligations hereunder.
22
ARTICLE VII
MISCELLANEOUS PROVISIONS
SECTION 7.01. AMENDMENT. This Agreement may be amended by the Servicer and
the Issuer, with the prior written consent of the Trustee, the consent of the
PUCT pursuant to Section 7.12 if the contemplated amendment increases ongoing
qualified costs as defined in the Financing Order and the satisfaction of the
Rating Agency Condition. Promptly after the execution of any such amendment or
consent, the Issuer shall furnish written notification of the substance of such
amendment or consent to each of the Rating Agencies.
Prior to the execution of any amendment to this Agreement, the Issuer and
the Trustee shall be entitled to receive and conclusively rely upon an Opinion
of Counsel stating that the execution of such amendment is authorized or
permitted by this Agreement and the Opinion of Counsel referred to in Section
3.11. The Issuer and the Trustee may, but shall not be obligated to, enter into
any such amendment which affects their own rights, duties or immunities under
this Agreement or otherwise.
SECTION 7.02. NOTICES. All demands, notices and communications upon or to
the Servicer, the Issuer, the PUCT, the Trustee or the Rating Agencies under
this Agreement shall be in writing, delivered personally, via facsimile, by
reputable overnight courier or by first class mail, postage prepaid, and shall
be deemed to have been duly given upon receipt
(a) in the case of the Servicer, to CenterPoint Houston, ▇▇▇▇
▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇, Attention: Treasurer;
(b) in the case of the Issuer, to CenterPoint Energy Transition Bond
Company II, LLC, ▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇,
Attention: Manager;
(c) in the case of the Trustee, at its Corporate Trust Office;
(d) in the case of Moody's, to ▇▇▇▇▇'▇ Investors Service, Inc., ABS
Monitoring Department, ▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇;
(e) in the case of Standard & Poor's, to Standard & Poor's, a
division of The ▇▇▇▇▇▇-▇▇▇▇ Companies, ▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇
▇▇▇▇▇; and
(f) in the case of Fitch, to Fitch Ratings, ▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇,
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇;
(g) in the case of the PUCT, to ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇,
▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇, Attention: Executive Director and General Counsel;
or, as to each of the foregoing, at such other address as shall be designated by
written notice to the other parties.
SECTION 7.03. ASSIGNMENT. Notwithstanding anything to the contrary
contained herein, except as provided in Sections 5.03 and 5.04 and as provided
in the provisions of this
23
Agreement concerning the resignation or termination of the Servicer, this
Agreement may not be assigned by the Servicer. Any purported assignment not in
compliance with this Agreement shall be void.
SECTION 7.04. LIMITATIONS ON RIGHTS OF OTHERS. The provisions of this
Agreement are solely for the benefit of the Servicer, the Issuer and, to the
extent provided herein or in the other Basic Documents, Customers and the other
Persons expressly referred to herein and the Trustee, on behalf of itself and
the Transition Bondholders, and nothing in this Agreement, whether express or
implied, shall be construed to give to any other Person any legal or equitable
right, remedy or claim in the Series Trust Estate or under or in respect of this
Agreement or any covenants, conditions or provisions contained herein.
Notwithstanding anything to the contrary contained herein, for the avoidance of
doubt, any right, remedy or claim to which any Customer may be entitled pursuant
to the Financing Order and this Agreement may be asserted or exercised only by
the PUCT (or by the Attorney General of the State of Texas in the name of the
PUCT) for the benefit of such Customer.
SECTION 7.05. SEVERABILITY. Any provision of this Agreement that is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
SECTION 7.06. SEPARATE COUNTERPARTS. This Agreement may be executed by the
parties hereto in separate counterparts, each of which when so executed and
delivered shall be an original, but all such counterparts shall together
constitute but one and the same instrument.
SECTION 7.07. HEADINGS. The headings of the various Articles and Sections
herein are for convenience of reference only and shall not define or limit any
of the terms or provisions hereof.
SECTION 7.08. GOVERNING LAW. This Agreement shall be construed in
accordance with the laws of the State of Texas, without reference to its
conflict of law provisions, and the obligations, rights and remedies of the
parties hereunder shall be determined in accordance with such laws.
SECTION 7.09. ASSIGNMENT TO THE TRUSTEE. The Servicer hereby acknowledges
and consents to any pledge, assignment and grant of a security interest by the
Issuer to the Trustee pursuant to the Indenture for the benefit of any
Transition Bondholders of all right, title and interest of the Issuer in, to and
under the Transition Property owned by the Issuer and the proceeds thereof and
the assignment of any or all of the Issuer's rights hereunder and under the
Intercreditor Agreement to the Trustee. Notwithstanding such assignment, in no
event shall the Trustee have any liability for the representations, warranties,
covenants, agreements or other obligations of the Issuer, hereunder or in any of
the certificates, notices or agreements delivered pursuant hereto, as to all of
which recourse shall be had solely to the assets of the Issuer.
24
SECTION 7.10. NONPETITION COVENANTS. Notwithstanding any prior termination
of this Agreement or the Indenture, but subject to a court's rights to order the
sequestration and payment of revenues arising with respect to the Transition
Property pursuant to Section 39.309(f) of the Texas Electric Choice Plan, the
Servicer shall not, prior to the date which is one year and one day after the
termination of the Indenture, petition or otherwise invoke or cause the Issuer
to invoke the process of any court or government authority for the purpose of
commencing or sustaining a case against the Issuer under any federal or state
bankruptcy, insolvency or similar law or appointing a receiver, liquidator,
assignee, trustee, custodian, sequestrator or other similar official of the
Issuer or any substantial part of the property of the Issuer, or ordering the
winding up or liquidation of the affairs of the Issuer.
SECTION 7.11. TERMINATION. This Agreement shall terminate when all
Transition Bonds have been retired or redeemed in full.
SECTION 7.12. PUCT CONSENT. Except as specifically set forth in Section
6.04, to the extent the consent of the PUCT is required to effect any amendment
to or modification of this Agreement or any provision of this Agreement,
(a) CenterPoint Houston may request the consent of the PUCT by
delivering to the PUCT's executive director and general counsel a written
request for such consent, which request shall contain:
(i) a reference to Docket No. 30485 and a statement as to the
possible effect of the amendment on ongoing qualified costs;
(ii) an Officer's Certificate stating that the proposed amendment
or modification has been approved by all parties to this Agreement; and
(iii) a statement identifying the person to whom the PUCT or its
staff is to address its consent to the proposed amendment or modification
or request additional time;
(b) The PUCT shall, within 30 days of receiving the request for
consent complying with Section 7.12(a) above, either
(i) provide notice of its consent or lack of consent to the person
specified in Section 7.12(a)(iii) above, or
(ii) be conclusively deemed, on the 31st day after receiving the
request for consent, to have consented to the proposed amendment or
modification,
unless, within 30 days of receiving the request for consent complying with
Section 7.12(a) above, the PUCT or its staff delivers to the office of the
person specified in Section 7.12(a)(iii) above a written statement requesting an
additional amount of time not to exceed thirty days in which to consider whether
to consent to the proposed amendment or modification. If the PUCT or its staff
requests an extension of time in the manner set forth in the preceding sentence,
then the PUCT shall either provide notice of its consent or lack of consent to
the person specified in Section 7.12(a)(iii) above no later than the last day of
such extension of time or be conclusively
25
deemed to have consented to the proposed amendment or modification on the last
day of such extension of time. Any amendment or modification requiring the
consent of the PUCT shall become effective on the later of (i) the date proposed
by the parties to such amendment or modification and (ii) the first day after
the expiration of the 30-day period provided for in Section 7.12(b)(ii), or, if
such period has been extended pursuant thereto, the first day after the
expiration of such period as so extended.
SECTION 7.13. EFFECT OF SUBSEQUENT PUCT REGULATIONS. Notwithstanding
anything to the contrary contained in this Agreement (including Annex 1 hereto),
to the extent the PUCT promulgates any PUCT Regulation permitted by the
Financing Order or the Texas Electric Choice Plan whose effect is to modify or
supplement any provision of this Agreement relating to REP standards, this
Agreement shall be deemed to have been so modified or supplemented on the
effective date of such regulation, and all other provisions contained herein
shall be deemed modified accordingly without the necessity of any further action
by any party hereto. The Servicer will notify the Issuer, the Rating Agencies
and the Trustee of any such PUCT Regulation and the corresponding modification
of or supplement to this Agreement promptly upon obtaining knowledge thereof.
26
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective officers as of the day and year first above
written.
CENTERPOINT ENERGY TRANSITION BOND
COMPANY II, LLC
By: /s/ ▇▇▇▇ ▇▇▇▇▇▇▇▇
-----------------------------------
Name: ▇▇▇▇ ▇▇▇▇▇▇▇▇
Title: Manager
CENTERPOINT ENERGY HOUSTON
ELECTRIC, LLC, as Servicer
By: /s/ ▇▇▇▇ ▇▇▇▇▇▇▇▇
-----------------------------------
Name: ▇▇▇▇ ▇▇▇▇▇▇▇▇
Title: Vice President and Treasurer
Acknowledged and Accepted:
Wilmington Trust Company,
not in its individual capacity but solely as
Trustee on behalf of the Holders
of the Transition Bonds
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
---------------------------------
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Title: Assistant Vice President
27
SCHEDULE A
TO
TRANSITION PROPERTY SERVICING AGREEMENT
Proceedings pending or, to the Servicer's best knowledge, threatened before any
court, federal or State regulatory body, administrative agency or other
governmental instrumentality having jurisdiction over the Servicer or its
properties seeking any determination or ruling that might materially and
adversely affect the Transition Property or the performance by the Servicer of
its obligations under, or the validity or enforceability against the Servicer
of, this Agreement:
NONE.
28
ANNEX 1
TO
TRANSITION PROPERTY SERVICING AGREEMENT
The Servicer agrees to comply with the following with respect to
CenterPoint Energy Transition Bond Company II, LLC (the "Issuer"):
SECTION 1. DEFINITIONS. Capitalized terms used herein and not otherwise
defined shall have the meanings set forth in Appendix A to the Transition
Property Servicing Agreement dated as of December 16, 2005 between the Issuer
and CenterPoint Houston, as Servicer.
SECTION 2. CHANGES TO PBRAF METHODOLOGY PURSUANT TO PUCT ORDER.
CenterPoint Houston's methodology for allocating qualified costs and developing
the initial PBRAFs will not be changed except in the limited circumstance where
total retail stranded costs on a statewide basis exceed $5 billion as described
in Part D of Section 6 of Schedule TC2. The Servicer shall file the adjustments
required therein, within 45 days after the PUCT issues any order that causes the
total statewide stranded costs (determined pursuant to Section 39.253(f) of the
Texas Electric Choice Plan) to exceed $5 billion or changes the amount by which
the total statewide stranded costs (determined pursuant to Section 39.253(f) of
the Texas Electric Choice Plan) exceed $5 billion.
SECTION 3. CALCULATION DATE STATEMENTS TO ISSUER AND TRUSTEE. For each
Calculation Date, the Servicer shall provide to the Issuer, the PUCT, the
Trustee and the Rating Agencies a statement indicating:
(a) the Transition Bond Balance and the Projected Transition Bond
Balance as of the immediately preceding Payment Date,
(b) the amount on deposit in the Capital Subaccount and the Required
Capital Amount as of the immediately preceding Payment Date;
(c) the Projected Transition Bond Balance and the Servicer's
projection of the Transition Bond Balance on the Payment Date immediately
preceding the next succeeding Adjustment Date; and
(d) the Servicer's projection of the amount on deposit in the Excess
Funds Subaccount for the Payment Date immediately preceding the next
succeeding Adjustment Date.
SECTION 4. CALCULATION DATE ACTIVITY BETWEEN THE SERVICER AND REPS.
(a) In accordance with the Financing Order and Schedule TC2, each
REP will be permitted to hold back an allowance for charge-offs in its
Transition Charge payments to the Servicer. Such charge-off rate will be
recalculated each year in connection with the annual Transition Charge
Adjustment. Until the first Calculation Date, each REP that has chosen to hold
back an allowance for charge-offs in its payments of TC Collections to the
Servicer will remit to the Servicer TC Collections based on the charge-off
percentage in effect for transition
1
charges related to the transition bonds issued by CenterPoint Energy Transition
Bond Company, LLC on October 24, 2001. Thereafter, on or about each Calculation
Date, the REP and the Servicer will be responsible for reconciling the amounts
held back with amounts actually written off as uncollectible in accordance with
the terms agreed to by the REP and the Servicer, provided that:
(i) The REP's right to reconciliation for write-offs will be limited
to customers whose service has been permanently terminated and whose
entire accounts (i.e., all amounts due the REP for its own account as well
as the portion representing all Transition Charges) have been written off.
(ii) The REP's recourse will be limited to a credit against future
Transition Charge payments unless the REP and the Servicer agree to
alternative arrangements, but, in accordance with the Financing Order and
Schedule TC2, in no event will the REP have recourse to the Trustee, the
Issuer or the Issuer's funds for such payments.
(iii) In accordance with the Financing Order and Schedule TC2, the
REP shall provide information on a timely basis to the Servicer so that
the Servicer can include the REP's default experience and any subsequent
credits into its calculation of the adjusted Transition Charge rates for
the next Transition Charge billing period. The REP's rights to credits
will not take effect until after such adjusted Transition Charges rates
have been implemented.
(b) If the REP has held back less than the amount actually written
off as uncollectible during the time period, the REP shall be entitled to a
credit against future Transition Charge payments over the twelve-month period
immediately following the next Adjustment Date in the amount of the hold-back
shortfall and no other remedy. If the REP has held back more than the amount
actually written off as uncollectible during the time period, the permitted
charge-off percentage shall be adjusted so that it is projected that the REP
will remit to the Servicer the amount of such underpayment of TC Collections
over the twelve-month period immediately following the next subsequent
Adjustment Date.
(c) The Servicer will incorporate the REPs' Customer default
information and any subsequent credits to the REPs for Transition Charges
already paid by the REPs to the Servicer in its calculation of the Transition
Charge Adjustments on the Calculation Date. The REPs' right described in this
Section 4 to receive a credit against future payments of TC Collections to the
Servicer shall not take effect until after the next subsequent Adjustment Date.
(d) In any case the Servicer shall ▇▇▇▇ to and collect from each REP
such REP's share of the amount required to meet the requirements of the
Financing Order, provided that in addition each ▇▇▇▇ shall also include the
amount of the holdback allowed for charge-offs.
SECTION 5. REMITTANCE STATEMENTS. On or before each remittance by the
Servicer to the Trustee, the Servicer shall prepare and furnish to the Issuer,
the PUCT and the Trustee a statement setting forth the aggregate amount remitted
or to be remitted by the Servicer to the Trustee for deposit on such date
pursuant to the Indenture.
2
SECTION 6. PAYMENT DATE STATEMENTS. By 12:00 noon Central Time on the
Business Day immediately preceding each Payment Date, the Servicer shall prepare
and furnish to the Issuer, the PUCT, the Trustee and the Rating Agencies a
Semiannual Servicer's Certificate setting forth the transfers and payments to be
made in respect of such Payment Date pursuant to Section 8.02(d) of the
Indenture and the amounts thereof and the amounts to be paid to Holders of
Transition Bonds of each Series pursuant to Section 8.02(e) of the Indenture.
SECTION 7. TRANSITION CHARGE AND PBRAF ADJUSTMENTS.
(a) Prior to each Calculation Date, the Servicer shall calculate
(i) the PBRAF Adjustments to be made in accordance with the
methodology set forth in Schedule TC2, as may be modified from time to
time by order from the PUCT,
(ii) the Transition Bond Balance as of each Calculation Date (a
written copy of which shall be delivered by the Servicer to the Trustee
and the PUCT within five business days following such Calculation Date),
and
(iii) the Transition Charge Adjustment with respect to the
Transition Property for the twelve-month period preceding and including
the next upcoming Adjustment Date and each subsequent twelve-month period,
such that the Servicer projects that TC Collections therefrom allocable to
the Issuer will be sufficient so that:
(A) the Transition Bond Balance on the Payment Date
immediately preceding the next Adjustment Date will equal the
Projected Transition Bond Balance as of such date or, if earlier
with respect to any Series or Tranche of Transition Bonds, by the
Expected Final Payment Date therefor, taking into account any
amounts on deposit in the Excess Funds Subaccount,
(B) the amount on deposit in the Capital Subaccount on the
Payment Date immediately preceding the next Adjustment Date, or if
earlier with respect to the Senior Secured Transition Bonds, Series
A or any Tranche thereof, by the Expected Final Payment Date
therefor, will equal the Required Capital Amount, taking into
account any amounts on deposit in the Excess Funds Subaccount and
taking into account any prior withdrawals of interest or earnings on
deposits in the Capital Subaccount used to meet payment obligations
on the Senior Secured Transition Bonds, Series A,
(C) thereafter, the TC Collections will provide for
amortization of the remaining outstanding principal amount of the
Senior Secured Transition Bonds, Series A in accordance with the
Expected Amortization Schedule therefor and payment of interest on
the Senior Secured Transition Bonds, Series A when due,
(D) the Servicer can reconcile past overpayments and
underpayments by all REPs of Transition Charges arising out of
hold-backs for charge-offs in accordance with Section 4 of this
Annex,
3
(E) the Servicer can recover out of TC Collections the
interest paid to all REPs arising out of a dispute between the
Servicer and any REP resolved pursuant to Section 8(b) of this Annex
for which the Servicer's claim to the funds in dispute was not
clearly unfounded, and
(F) the fees and expenses of the Servicer, the Trustee, the
independent managers of the Issuer and the Administrator and other
fees expenses, charges and costs authorized in the Financing Order
will be paid.
(b) On each Calculation Date, the Servicer shall make annual
reconciliation filings with the PUCT for that Calculation Date. The Servicer
shall promptly thereafter provide notice and a copy of such filings to each
Rating Agency. The Servicer's Calculation Date filings shall include:
(i) any PBRAF Adjustments to take effect on the next Adjustment Date
(in which case, the Servicer shall provide notice of such filing to all
parties in PUCT Docket No. 30485 and shall participate in a contested case
proceeding at the PUCT, the purpose of which will be to determine whether
any proposed adjustment complies with the Financing Order, as set forth
therein), and
(ii) a tariff supplement setting forth Transition Charge Adjustments
to become effective on the next Adjustment Date and supporting data,
including the calculation of the Transition Charge Adjustments.
(c) The Servicer shall calculate any interim Transition Charge
Adjustments to be requested between Calculation Dates to correct
under-collection or over-collection of Transition Charges, as set forth in the
Financing Order and Schedule TC2, in order to provide for the timely payment of
the Transition Bonds. More particularly, the Servicer shall calculate and file
for interim Transition Charge Adjustments:
(i) as needed to meet any Rating Agency requirement that the
Transition Bonds of any Series be paid in full at scheduled maturity; or
(ii) to correct any undercollection of Transition Charges,
regardless of cause, in order to assure timely payment of the Transition
Bonds of that Series based on Rating Agency and Transition Bondholder
considerations, including a mandatory interim Transition Charge Adjustment
in connection with each Payment Date if the Servicer forecasts that TC
Collections during the next payment period will be insufficient to make
all scheduled payments of interest, principal and other amounts in respect
of the Transition Bonds of that Series and to replenish the Capital
Subaccount for that Series to the Required Capital Amount.
In the event an interim Transition Charge Adjustment is permitted
under Schedule TC2, the Servicer will file for such an adjustment with the PUCT
not less than fifteen days prior to the proposed Interim Adjustment Date. The
Servicer shall promptly thereafter provide notice and a copy of such filings to
each Rating Agency. The Servicer will make the interim filing described in this
Section 7(c) no more frequently than every three months if quarterly payments
are made to Transition Bond Owners and no more frequently than every six months
(except that
4
interim filings will be made no more frequently than every three months in the
fourteenth and fifteenth years of the Transition Bonds).
(d) The Servicer shall take reasonable steps to monitor the
Transition Charge rate for each class of Customers to determine whether any such
rate exceeds the maximum rate that class of Customers is obligated to pay under
Section 39.202(a) of the Texas Electric Choice Plan. If such maximum rate is
being exceeded for any class of Customers ("Affected Class"), then the Servicer
shall cause the billing entity for Customers in the Affected Class to apply the
maximum rate allowed under that section to the Affected Class, and the rates for
all other classes of Customers ("Remaining Classes") shall be recalculated using
the maximum rate for the Affected Class. The Servicer will allocate any
resulting deficiency in Transition Charges to the Remaining Classes based on the
ratio of the PBRAFs then in effect.
(e) On each Adjustment Date and Interim Adjustment Date, the
Servicer shall
(i) take all reasonable actions and make all reasonable efforts in
order to effectuate all adjustments approved by the PUCT to the Transition
Charges and/or PBRAFs, and
(ii) promptly send to the Trustee copies of all material notices and
documents relating to such adjustments.
SECTION 8. OTHER ACTIVITY BETWEEN THE SERVICER AND REPS.
(a) In the event an REP provides any of (A) a cash deposit to the
Trustee in the form of up to two months' maximum expected transition charge
collections, (B) a surety bond or affiliate guarantee or (C) a letter of credit
(each, an "REP Deposit") pursuant to the Financing Order and Schedule TC2,
(i) the Servicer shall agree with the REP as to the size of the
initial REP Deposit,
(ii) no more frequently than quarterly, upon the request of either
the REP or the Servicer, the Servicer shall cooperate with the REP as
required by the Financing Order and Schedule TC2 to ensure that the REP
Deposit accurately reflects up to two months' maximum TC Collections.
Within 10 days following the review by the REP and Servicer of the size of
the REP Deposit, either the REP shall remit to the Trustee the amount of
any shortfall in the REP Deposit or the Servicer shall instruct the
Trustee to remit or release to the REP any portion of the REP Deposit no
longer required to be on deposit,
(iii) The Servicer shall instruct the Trustee in writing to remit or
release to the REP the REP Deposit, plus any investment earnings thereon,
upon the Final Maturity Date of the final Tranche, if applicable, of the
final Series of Transition Bonds except such portion of the REP Deposit as
was utilized in satisfaction of the REP's obligation to remit billed
Transition Charges, and
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(iv) The Servicer shall instruct the Trustee to remit to the REP the
REP Deposit, plus any investment earnings thereon, within 30 days of the
date on which the REP Deposit is no longer required under the Financing
Order or Schedule TC2.
(b) In the event an REP disputes any amount of billed Transition
Charges, the Servicer shall require the REP to pay the disputed amount under
protest within the time for payment set forth in Section 3.02 of this Agreement.
The Servicer shall attempt to resolve informally the dispute with the REP, or
any dispute related to the date of receipt of Transition Charge payments,
Penalties, or the size of the required REP Deposit. If the REP and the Servicer
cannot reach an informal resolution to the dispute, either party may file a
complaint with the PUCT as set forth in the Financing Order and Schedule TC2. If
the REP prevails in the informal dispute process or before the PUCT, the
Servicer shall provide the REP with a refund of the disputed amount paid to the
Servicer plus interest at a rate approved by the PUCT. As provided in the
Financing Order, Schedule TC2 and Section 7(a)(iii)(F) of this Annex, interest
paid by the Servicer shall be recoverable through Transition Charges if the
Servicer's claim to the funds is not clearly unfounded. In addition, as provided
in the Financing Order and Schedule TC2, the Servicer shall not be required to
pay interest to the REP if the Servicer has received inaccurate metering data
from another entity providing competitive metering services pursuant to the
Texas Electric Choice Plan.
(c) The Servicer shall adhere to the instructions of an REP that
bills Customers for Transition Charges to terminate transmission and
distribution service to a Customer for nonpayment by the Customer pursuant to
the Financing Order and Schedule TC2.
SECTION 9. OTHER ACTIVITIES BY THE SERVICER.
(a) In addition to the obligation set forth in Section 8(c) of this
Annex, the Servicer shall have the rights and obligations to terminate electric
service for non-payment of Transition Charges under the circumstances set forth
in Schedule TC2 and PUCT Regulations.
(b) If an REP fails to remit payment in full of all Transition
Charges billed to such REP by the day that is 45 calendar days after the REP
Billing Day, the Servicer shall, in addition to assessing the Penalty against
such REP described in Section 3.02(c) of the Servicing Agreement, direct the
Trustee by written instruction to apply from such REP's REP Deposit (by making a
withdrawal from a deposit account, a demand under a surety bond or a guarantee,
and/or a draw under a letter of credit, as applicable) into the Collection
Account the lesser of the amount of Transition Charges such REP has failed to
remit or the amount of the REP Deposit. The Servicer shall notify the REP of
such withdrawal, demand and/or draw from the REP Deposit to the Collection
Account and instruct the REP to remit, or otherwise restore, immediately the
amount of such withdrawal, demand and/or draw to the Trustee for replenishment
of such REP's REP Deposit. The Servicer shall require the REP to immediately
replenish its REP Deposit and shall avail itself of such legal remedies as may
be appropriate to collect any remaining unpaid Transition Charges and associated
penalties due to the Servicer after application of the REP Deposit, in
accordance with the Financing Order and Schedule TC2.
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(c) If an REP is in default pursuant to Section 9 of Schedule TC2
and Finding of Fact 60 of the Financing Order (such default an "REP Default"),
the Servicer shall perform such duties as are required of the Servicer therein,
including but not limited to the following:
(i) in the event the REP in REP Default seeks to implement
alternative arrangements with the Servicer regarding the billing and
collection of Transition Charges pursuant to Section 9 of Schedule TC2 and
Finding of Fact 60 of the Financing Order, the Servicer shall consider
proposals from such REP but shall not accept any proposal, and no proposal
shall be deemed mutually suitable and agreeable, other than the options
set forth in Section 9 of Schedule TC2 unless (i) the Servicer is directed
promptly in writing by the Trustee to accept a proposal of such REP
following the approval of such proposal by the Majority Holders, (ii) such
proposal would not materially and adversely affect the interests of the
Transition Bondholders and (iii) the Rating Agency Condition has been
satisfied; and
(ii) in the event the REP in REP Default fails to immediately select
and implement an alternative method of billing and collecting Transition
Charges as specified in Section 9 of Schedule TC2 and Finding of Fact 60
of the Financing Order or fails to adequately meet its responsibilities
thereunder, the Servicer shall immediately allow the appropriate Provider
of Last Resort or another qualified REP of a Customer's choosing to
immediately assume responsibility for the billing and collection of
Transition Charges from such Customer.
(d) In the event the appropriate Provider of Last Resort defaults or
is ineligible to provide billing and collection of Transition Charges when
requested by a Customer or the Servicer, as applicable, the Servicer shall
assume responsibility for billing and collection of Transition Charges until a
new Provider of Last Resort is named by the PUCT or the Customer requests the
services of another REP, in accordance with Schedule TC2 and PUCT Regulations.
In any case, the Servicer shall enforce the obligations, and exercise its
remedies against, each REP including any Provider of Last Resort, as permitted
under the Financing Order and Schedule TC2.
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APPENDIX A
DEFINITIONS
The definitions contained in this Appendix A are applicable to the
singular as well as the plural forms of such terms.
"Accrued Interest" means interest accrued at the Federal Funds Rate on
amounts held by the Servicer prior to, on, or after the date such amounts are
due and payable to the Trustee under this Agreement.
"Act" has the meaning specified in Section 11.03 of the Indenture.
"Additional TC Servicer" has the meaning specified in the Intercreditor
Agreement.
"Adjustment Date" means the date other than an Interim Adjustment Date on
which any Transition Charge Adjustment (other than an interim (non-annual)
Transition Charge Adjustment) and/or any PBRAF Adjustment, as applicable,
becomes effective. The first Adjustment Date will be on or about December 1,
2006, and all subsequent Adjustment Dates shall be on or about the same day of
the year in subsequent years.
"Administration Agreement" means the Administration Agreement dated as of
December 16, ▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, as Administrator, and the
Issuer, as the same may be amended and supplemented from time to time.
"Administrator" means CenterPoint Houston as administrator under the
Administration Agreement and each successor to or assignee of CenterPoint
Houston in the same capacity.
"Affiliate" means, with respect to any specified Person, any other Person
controlling or controlled by or under common control with such specified Person.
For the purposes of this definition, control, when used with respect to any
specified Person, means the power to direct the management and policies of such
Person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise; and the terms controlling and controlled
have meanings correlative to the foregoing.
"Annual Accountant's Report" has the meaning assigned to that term in
Section 3.07 of the Servicing Agreement.
"Basic Documents" means the Issuer LLC Agreement, the Issuer Certificate
of Formation, the Sale Agreement, the Servicing Agreement, the Intercreditor
Agreement, each Swap Agreement (as defined in the Indenture) relating to the
Senior Secured Transition Bonds, Series A, the Administration Agreement, the
Indenture, the Series Supplement, the Underwriting Agreement relating to the
Senior Secured Transition Bonds, Series A and the ▇▇▇▇ of Sale.
"▇▇▇▇ of Sale" has the meaning assigned to that term in the Sale
Agreement.
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"Book-Entry Transition Bonds" means beneficial interests in the Transition
Bonds, ownership and transfers of which shall be made through book entries by a
Clearing Agency as described in Section 2.11 of the Indenture.
"Business Day" means any day other than a Saturday or Sunday or a day on
which banking institutions in the City of Houston, Texas, or in the City of New
York, New York, are required or authorized by law or executive order to remain
closed.
"Calculation Date" means, with respect to the Senior Secured Transition
Bonds, Series A, the date on which the calculations and filings set forth in the
Issuer Annex will be made each year. The first Calculation Date will be no later
than November 16, 2006, if the Servicer requests only Transition Charge
Adjustments, and no later than September 1, 2006, if the Servicer requests any
PBRAF Adjustments (whether or not the Servicer also requests Transition Charge
Adjustments). Subsequent Calculation Dates will be on or about the same
applicable day of the year in subsequent years.
"Capital Subaccount" has the meaning specified in Section 8.02(a) of the
Indenture.
"CenterPoint Houston" means CenterPoint Energy Houston Electric, LLC, a
Texas limited liability company, or its successor.
"Clearing Agency" means an organization registered as a "clearing agency"
pursuant to Section 17A of the Exchange Act.
"Clearing Agency Participant" means a broker, dealer, bank, other
financial institution or other Person for whom from time to time a Clearing
Agency effects book-entry transfers and pledges of securities deposited with the
Clearing Agency.
"Collection Account" has the meaning specified in Section 8.02(a) of the
Indenture.
"Collection Period" means the period from and including the first day of a
calendar month to but excluding the first day of the next calendar month.
"Corporate Trust Office" has the meaning specified in Appendix A to the
Indenture.
"Customer Class" means each of the Transition Charge classes specified in
the Financing Order.
"Customers" means each Person from whom CenterPoint Houston is authorized
to recover Qualified Costs as defined in and pursuant to the Texas Electric
Choice Plan or any PUCT Regulation, as more specifically set forth in the
Indenture.
"Default" means any occurrence that is, or with notice or the lapse of
time or both would become, an Event of Default.
"Designated Account Holder" has the meaning specified in the Intercreditor
Agreement.
"DTC" means The Depository Trust Company.
9
"Event of Default" has the meaning specified in Section 5.01 of the
Indenture.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Expected Amortization Schedule" means, with respect to the Senior Secured
Transition Bonds, Series A, or any Tranche thereof, the expected amortization
schedule for principal thereof, as specified in the Series Supplement.
"Expected Final Payment Date" means, with respect to the Senior Secured
Transition Bonds, Series A, or, if applicable, each Tranche thereof, the date
when all interest and principal is scheduled to be paid for that Series or
Tranche in accordance with the Expected Amortization Schedule, as specified in
the Series Supplement.
"Federal Funds Rate" means, for any period, a fluctuating interest rate
per annum equal for each day during such period to the weighted average of the
rates on overnight federal funds transactions with members of the Federal
Reserve System arranged by federal funds brokers, as published for such day (or,
if such day is not a Business Day, for the next preceding Business Day) by the
Federal Reserve Bank of New York, or, if such rate is not so published for any
day that is a Business Day, the average of the quotations for such day on such
transactions received by the Servicer from three federal funds brokers of
recognized standing selected by it.
"Final Maturity Date" means, for the Senior Secured Transition Bonds,
Series A, or, if applicable, each Tranche thereof, the date by which all
principal and interest on the Transition Bonds is required to be paid, as
specified in the Series Supplement.
"Financing Order" means the Financing Order issued by the PUCT on March
16, 2005 in Docket No. 30485 pursuant to the Texas Electric Choice Plan.
"Fitch" means Fitch Ratings or any successor thereto.
"Formation Documents" means, collectively, the Issuer Certificate of
Formation, the Issuer LLC Agreement and any other document pursuant to which the
Issuer is formed or governed, as the same may be amended and supplemented from
time to time.
"Holder" or "Transition Bondholder" means the Person in whose name a
Transition Bond of any Series or Tranche is registered on the Transition Bond
Register.
"Indenture" means the Indenture, dated as of December 16, 2005, between
the Issuer and the Trustee and the Series Supplement thereto dated as of
December 16, 2005 relating to the Senior Secured Transition Bonds, Series A
(including the forms and terms of the Senior Secured Transition Bonds, Series A
established thereunder), as the same may be amended and supplemented with
respect to the Senior Secured Transition Bonds, Series A from time to time.
"Independent" means, when used with respect to any specified Person, that
the Person
(a) is in fact independent of the Issuer, any other obligor upon the
Transition Bonds, the Servicer and any Affiliate of any of the foregoing
Persons,
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(b) does not have any direct financial interest or any material
indirect financial interest in the Issuer, any such other obligor, the
Servicer or any Affiliate of any of the foregoing Persons and
(c) is not connected with the Issuer, any such other obligor, the
Servicer or any Affiliate of any of the foregoing Persons as an officer,
employee, promoter, underwriter, trustee, partner, director or person
performing similar functions.
"Insolvency Event" means, with respect to a specified Person,
(a) the filing of a decree or order for relief by a court having
jurisdiction in the premises in respect of such Person or any substantial
part of its property in an involuntary case under any applicable federal
or State bankruptcy, insolvency or other similar law now or hereafter in
effect, or appointing a receiver, liquidator, assignee, custodian,
trustee, sequestrator or similar official for such Person or for any
substantial part of its property, or ordering the winding-up or
liquidation of such Person's affairs, and such decree or order shall
remain unstayed and in effect for a period of 90 consecutive days, or
(b) the commencement by such Person of a voluntary case under any
applicable federal or State bankruptcy, insolvency or other similar law
now or hereafter in effect, or the consent by such Person to the entry of
an order for relief in an involuntary case under any such law, or the
consent by such Person to the appointment of or taking possession by a
receiver, liquidator, assignee, custodian, trustee, sequestrator or
similar official for such Person or for any substantial part of its
property, or the making by such Person of any general assignment for the
benefit of creditors, or the failure by such Person generally to pay its
debts as such debts become due, or the taking of action by such Person in
furtherance of any of the foregoing.
"Intercreditor Agreement" means the Intercreditor Agreement dated as of
December 16, 2005, among the Issuer, CenterPoint Houston, CenterPoint Energy
Transition Bond Company, LLC, the Trustee and the other parties thereto, each in
the capacities stated therein, as the same may be amended from time to time.
"Interim Adjustment Date" means the effective date of any interim
(non-annual) Transition Charge Adjustment.
"Issuance Advice Letter" means the issuance advice letter submitted to the
PUCT by CenterPoint Houston pursuant to the Financing Order in connection with
the issuance of the Senior Secured Transition Bonds, Series A.
"Issuer" means CenterPoint Energy Transition Bond Company II, LLC, a
Delaware limited liability company, or any successor thereto pursuant to the
Indenture.
"Issuer Annex" means Annex 1 of the Servicing Agreement.
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"Issuer Certificate of Formation" means the Certificate of Formation of
the Issuer that was filed with the Delaware Secretary of State on December 3,
2004, as amended and restated on December 14, 2005, as the same may be amended
and restated from time to time.
"Issuer LLC Agreement" means the Limited Liability Company Agreement
between the Issuer and CenterPoint Houston, as sole Member, effective as of
December 3, 2004, as amended and restated on December 16, 2005, as the same may
be amended and supplemented from time to time.
"Lien" means a security interest, lien, charge, pledge, equity or
encumbrance of any kind.
"Losses" means collectively, any and all liabilities, obligations, losses,
damages, payments, costs or expenses of any kind whatsoever.
"Majority Holders" means the Holders of a majority of the Outstanding
Amount of the Senior Secured Transition Bonds, Series A.
"Moody's" means ▇▇▇▇▇'▇ Investors Service Inc., or any successor thereto.
"Officers' Certificate" means a certificate signed, in the case of
CenterPoint Houston, by:
(a) any manager, the chairman of the board, the chief executive
officer, the president, the vice chairman or any executive vice president,
senior vice president or vice president; and
(b) the treasurer, any assistant treasurer, the secretary or any
assistant secretary.
"Operating Expenses" means, with respect to the Issuer, all fees, costs
and expenses owed by the Issuer with respect to the Senior Secured Transition
Bonds, Series A, including all amounts owed by the Issuer to the Trustee, the
Servicing Fee, the fees and expenses relating to the Senior Secured Transition
Bonds, Series A, payable by the Issuer to the Administrator under the
Administration Agreement, the fees and expenses relating to the Senior Secured
Transition Bonds, Series A, payable by the Issuer to the Independent managers of
the Issuer, legal fees and expenses of the Servicer pursuant to this Servicing
Agreement, and legal and accounting fees, costs and expenses of the Issuer
relating to the Senior Secured Transition Bonds, Series A.
"Opinion of Counsel" means one or more written opinions of counsel who may
be an employee of or counsel to CenterPoint Houston and the Issuer, which
counsel shall be reasonably acceptable to the Trustee, the Issuer or the Rating
Agencies, as applicable, and which shall be in form reasonably satisfactory to
the Trustee, if applicable.
"Outstanding" with respect to Transition Bonds means, as of the date of
determination, all Transition Bonds theretofore authenticated and delivered
under the Indenture except:
(a) Transition Bonds theretofore canceled by the Transition Bond
Registrar or delivered to the Transition Bond Registrar for cancellation;
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(b) Transition Bonds or portions thereof the payment for which money
in the necessary amount has been theretofore deposited with the Trustee or
any Paying Agent in trust for the Holders of such Transition Bonds;
provided, however, that if such Transition Bonds are to be redeemed,
notice of such redemption has been duly given pursuant to the Indenture or
provision therefor, satisfactory to the Trustee; and
(c) Transition Bonds in exchange for or in lieu of other Transition
Bonds which have been authenticated and delivered pursuant to the
Indenture unless proof satisfactory to the Trustee is presented that any
such Transition Bonds are held by a bonafide purchaser;
provided that in determining whether the Holders of the requisite Outstanding
Amount of the Transition Bonds or any Series or Tranche thereof have given any
request, demand, authorization, direction, notice, consent or waiver hereunder
or under any Basic Document, Transition Bonds owned by the Issuer, any other
obligor upon the Transition Bonds, CenterPoint Houston or any Affiliate of any
of the foregoing Persons shall be disregarded and deemed not to be Outstanding,
except that, in determining whether the Trustee shall be fully protected in
relying upon any such request, demand, authorization, direction, notice, consent
or waiver, only Transition Bonds that a Responsible Officer of the Trustee knows
to be so owned shall be so disregarded. Transition Bonds so owned that have been
pledged in good faith may be regarded as Outstanding if the pledgee establishes
to the satisfaction of the Trustee the pledgee's right so to act with respect to
such Transition Bonds and that the pledgee is not the Issuer, any other obligor
upon the Transition Bonds, the Servicer or any Affiliate of any of the foregoing
Persons.
"Outstanding Amount" means the aggregate principal amount of all
Outstanding Senior Secured Transition Bonds, Series A, or, if the context
requires, all Outstanding Transition Bonds of a Tranche of Senior Secured
Transition Bonds, Series A, Outstanding at the date of determination.
"Paying Agent" means the Trustee or any other Person that meets the
eligibility standards for the Trustee specified in Section 6.11 of the Indenture
and is authorized by the Issuer to make the payments of principal of or premium,
if any, or interest on the Transition Bonds on behalf of the Issuer.
"Payment Date" means, with respect to the Senior Secured Transition Bonds,
Series A, or, if applicable, each Tranche thereof, the date or dates specified
as Payment Dates for such Series or Tranche in the Series Supplement therefor,
provided that if any such date is not a Business Day, the Payment Date shall be
the Business Day immediately succeeding such date.
"PBRAF" means the periodic billing requirement allocation factor used to
allocate Transition Charges among different classes of Customers, as set forth
in Schedule TC2 and any other applicable tariff or order.
"PBRAF Adjustment" means each adjustment to any PBRAF made in accordance
with Section 4.01 of the Servicing Agreement, Schedule TC2 and any other
applicable tariff, any order issued by the PUCT pursuant to Section 39.253 of
the Texas Electric Choice Plan, and the Issuer Annex.
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"Penalty" means a late-fee penalty assessed by the Servicer against an REP
for the REP's failure to remit timely payments of Transition Charges as set
forth in Section 3.02(c) of this Agreement.
"Person" means any individual, corporation, estate, partnership, joint
venture, association, joint stock company, trust (including any beneficiary
thereof), business trust, limited liability company, unincorporated organization
or government or any agency or political subdivision thereof.
"Proceeding" means any suit in equity, action at law or other judicial or
administrative proceeding.
"Projected Transition Bond Balance" means, as of any date, the anticipated
Outstanding Amount of Senior Secured Transition Bonds, Series A, after giving
effect to payment of the sum of the payment amounts provided for in the Expected
Amortization Schedules for the Senior Secured Transition Bonds, Series A, to be
paid on or before such date.
"Provider of Last Resort" has the meaning specified in Section 39.106 of
the Texas Electric Choice Plan.
"PUCT" means the Public Utility Commission of Texas or any successor
entity thereto.
"PUCT Regulations" means any regulations, rules, orders or directives
promulgated, issued or adopted by the PUCT.
"Qualified Costs" has the meaning assigned to that term in the Texas
Electric Choice Plan and the Financing Order.
"Rating Agency" means any rating agency rating the Senior Secured
Transition Bonds, Series A, at the time of issuance at the request of the
Issuer, which initially shall be ▇▇▇▇▇'▇, Fitch and Standard & Poor's. If no
such organization or successor is any longer in existence, "Rating Agency" shall
be a nationally recognized statistical rating organization or other comparable
Person designated by the Issuer, written notice of which designation shall be
given to the Trustee, the PUCT and the Servicer.
"Rating Agency Condition" means, with respect to any action, the
notification in writing to each Rating Agency of such action, and confirmation
from S&P to the Trustee and the Issuer that such action will not result in a
reduction or withdrawal of the then current rating by such Rating Agency of the
Senior Secured Transition Bonds, Series A.
"Redemption Date" means, with respect to the Senior Secured Transition
Bonds, Series A, or, if applicable, each Tranche thereof, the date for the
redemption of the Transition Bonds of such Series or Tranche pursuant to
Sections 10.01 or 10.02 of the Indenture or the Series Supplement for such
Series or Tranche, which in each case shall be a Payment Date.
"Released Parties" has the meaning specified in Section 5.02(f) of the
Servicing Agreement.
14
"REP" means a retail electric provider under the Financing Order.
"REP Billing Day" has the meaning specified in Section 3.02(c) of the
Servicing Agreement.
"REP Default" has the meaning specified in Section 9(c) of the Issuer
Annex.
"REP Deposit" has the meaning specified in Section 8 of the Issuer Annex.
"Required Capital Amount" means a capital contribution in an amount equal
to the amount specified in the Series Supplement, representing a capital
contribution from CenterPoint Houston.
"Responsible Officer" means, with respect to the Trustee, any officer
within the Corporate Trust Office of the Trustee, including any Vice President,
Director, Managing Officer, associate, Assistant Vice President, Secretary,
Assistant Secretary, or any other officer of the Trustee customarily performing
functions similar to those performed by any of the above designated officers and
also, with respect to a particular matter, any other officer to whom such matter
is referred because of such officer's knowledge of and familiarity with the
particular subject.
"Retiring Trustee" means a Trustee that resigns or vacates the office of
Trustee for any reason.
"Sale Agreement" means the Transition Property Sale Agreement dated as of
December 16, 2005 relating to the Transition Property, between the Seller and
the Issuer, as the same may be amended and supplemented from time to time.
"Sale Date" means the date on which the Seller sells, transfers, assigns
and conveys the Transition Property to which this Agreement relates to the
Issuer.
"Schedule TC2" means the tariff on the form entitled "Schedule TC2"
approved by the PUCT in the Financing Order and filed by CenterPoint Houston
prior to the issuance of any Transition Bonds.
"Seller" means CenterPoint Houston, or its successor, in its capacity as
seller of the Transition Property to the Issuer pursuant to the Sale Agreement.
"Semiannual Servicer's Certificate" means the statement prepared by the
Servicer and delivered to the Transition Bond Registrar or in its absence or
failure the Paying Agent with respect to the Senior Secured Transition Bonds,
Series A, on or prior to each Payment Date therefor, the form of which is
attached to the Indenture as Schedule 1.
"Series" means the Senior Secured Transition Bonds, Series A issued by the
Issuer and authenticated by the Trustee pursuant to the Indenture, as specified
in the Series Supplement.
"Series Issuance Date" means the date on which the Senior Secured
Transition Bonds, Series A, are to be originally issued in accordance with the
Indenture and the Series Supplement.
15
"Series Supplement" means the First Supplemental Indenture dated of even
date herewith to the Indenture that authorizes the Senior Secured Transition
Bonds, Series A.
"Series Trust Estate" has the meaning specified in the Series Supplement.
"Servicer" means CenterPoint Houston, as the servicer of the Transition
Property, and each successor to or assignee of CenterPoint Houston (in the same
capacity) pursuant to Section 5.03, 5.04, or 6.04 of the Servicing Agreement.
"Servicer Default" means an event specified in Section 6.01 of the
Servicing Agreement.
"Servicing Agreement" means the Transition Property Servicing Agreement
dated as of December 16, 2005, between the Issuer and the Servicer, and
acknowledged by the Trustee, relating to the Transition Property as the same may
be amended and supplemented from time to time.
"Servicing Fee" means the fee payable by the Issuer to the Servicer on
each Payment Date with respect to the Senior Secured Transition Bonds, Series A,
in an amount specified in Section 5.07 of the Servicing Agreement.
"Standard & Poor's" or "S&P" means Standard & Poor's, a division of The
▇▇▇▇▇▇-▇▇▇▇ Companies, or any successor thereto.
"State" means any one of the 50 states of the United States of America or
the District of Columbia.
"Successor Servicer" means a successor Servicer appointed by the Trustee
pursuant to Section 6.04 of the Servicing Agreement which will succeed to all
the rights and duties of the Servicer under the Servicing Agreement.
"TC Collections" means amounts constituting good funds collected by any
Person in respect of Transition Charges and Transition Property.
"Termination Notice" has the meaning specified in Section 6.01 of the
Servicing Agreement.
"Texas Electric Choice Plan" means the Act of May 21, 1999, 76th Leg. R.S.
ch. 405, 1999 (codified at Texas Utilities Code Section 39.001 et seq.).
"Tranche" means any one of the tranches of Senior Secured Transition
Bonds, Series A, as specified in the Series Supplement.
"Transition Bond" means any of the Senior Secured Transition Bonds, Series
A issued by the Issuer pursuant to the Indenture.
"Transition Bond Balance" means, as of any date, the aggregate Outstanding
Amount of Senior Secured Transition Bonds, Series A on such date.
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"Transition Bond Owner" means, with respect to a Book-Entry Transition
Bond, the Person who is the beneficial owner of such Book-Entry Transition Bond,
as reflected on the books of the Clearing Agency, or on the books of a Person
maintaining an account with such Clearing Agency (directly as a Clearing Agency
Participant or as an indirect participant, in each case in accordance with the
rules of such Clearing Agency).
"Transition Bond Register" has the meaning specified in Section 2.05 of
the Indenture.
"Transition Bond Registrar" means the Trustee, in its capacity as keeper
of the Transition Bond Register, or any successor to the Trustee in such
capacity.
"Transition Charge Adjustment" means each adjustment to Transition Charges
related to the Transition Property made in accordance with Section 4.01 of the
Servicing Agreement and the Issuer Annex or in connection with the redemption or
refunding by the Issuer of Transition Bonds.
"Transition Charges" means the nonbypassable amounts to be charged for the
use or availability of electric services, approved by the PUCT in the Financing
Order to recover Qualified Costs, that shall be collected by CenterPoint
Houston, its successors, assignees or other collection agents as provided for in
the Financing Order.
"Transition Property" means the rights and interests of Seller or its
successor under the Financing Order, once those rights are first transferred to
the Issuer or pledged in connection with the issuance of the Transition Bonds,
including the right to impose, collect and receive through Transition Charges
payable by retail electric customers within Seller's certificated service area
as it existed on May 1, 1999, an amount sufficient to cover the Qualified Costs
of the Seller authorized in the Financing Order, the right to receive Transition
Charges in amounts and at times sufficient to pay principal and interest and
make other deposits in connection with the Transition Bonds and all revenues and
collections resulting from Transition Charges.
"Transition Property Documentation" means all documents relating to the
Transition Property, including copies of the Financing Order and all documents
filed with the PUCT in connection with any Transition Charges Adjustment.
"Trustee" means Wilmington Trust Company, a Delaware banking corporation,
as trustee, or its successor or any successor Trustee under the Indenture.
"UCC" means, unless the context otherwise requires, the Uniform Commercial
Code, as in effect in the relevant jurisdiction, as amended from time to time.
"Underwriting Agreement" has the meaning specified in the Indenture.
"Utility" has the meaning specified in the Intercreditor Agreement.
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