[No. 599] IN THE MATTER OF WASHINGTON GAS LIGHT COMPANY File No. 32-108. Promulgated October 29, 1938 EXEMPTION OF SECURITY ISSUE OF REGISTERED HOLDING COMPANY OR SUBSIDIARY. Issue Solely for Purpose of Financing Business of Subsidiary. Application for exemption of issue and sale of refunding mortgage bonds by subsidiary of a registered holding company for the purpose of redeeming certain bonds, having been expressly authorized by state commission, granted pursuant to Section 6 (b) of the Public Utility Holding Company Act of 1935, as being solely for the purpose of financing the business of the applicant. Condition on Exemption. Certificate of Notification Required. Exemption of issue or sale of securities pursuant to Section 6 (b) of Public Utility Holding Company Act of 1935, granted upon condition that applicant file with Commission, within 10 days after any issue or sale of the securities exempted, a certificate of notification showing that such issue or sale has been effected in accordance with the terms, conditions, and purposes represented by application. Effect of Subsequent Action by State Commission. Order exempting issue or sale of securities pursuant to Section 6 (b) of Public Utility Holding Company Act of 1935, granted upon condition that the exemption shall terminate without any further action by this Commission if state commission revokes or otherwise terminates its authorization. FINDINGS OF THE COMMISSION Washington Gas Light Company, a subsidiary of Washington and Suburban Companies, a registered holding company, has filed an application and two amendments thereto, pursuant to the provisions of Section 6 (b) of the Public Utility Holding Company Act of 1935, for exemption from the provisions of Section 6 (a) of the Act of the issue and sale of $8,500,000 principal amount of its refunding mortgage bonds, 4% series due 1963. The bonds are to be dated as of September 1, 1938, are to bear interest at the rate of 4% per annum from September 1, 1938, are to mature on September 1, 1963, and are to be redeemable prior to maturity as a whole at any time or in part on any interest payment date or dates by lot. Section 6 (b) of the Act provides that the Commission shall exempt from the provisions of Section 6 (a) "subject to such terms and conditions as it deems appropriate in the public interest or for the protection of investors and consumers," the issue or sale of any security by any subsidiary company of a registered holding company, if the issue and sale of such security are solely for the purpose of financing the business 3 S. E. C. of such subsidiary company and have been expressly authorized by the state commission of the state in which such subsidiary company is organized and doing business. A hearing on the applications, as amended, was duly held after appropriate notice. No member of the public appeared or requested an opportunity to be heard at the hearing. The record in this matter having been duly considered, the Commission makes the following findings: Washington Gas Light Company of Washington, D. C., incorporated by an act of Congress in 1848, is a public utility company engaged in the business of manufacturing and selling gas within the District of Columbia; its subsidiaries, Washington Gas Light Company of Montgomery County, Maryland, and Rosslyn Gas Company, are engaged in the business of distributing, selling, and supplying gas in the territory contiguous to the District of Columbia in the States of Maryland and Virginia, respectively; its subsidiary, Prince George's Gas Corporation, is engaged solely in the business of owning and operating a gas storage holder and compressor station in territory contiguous to the District of Columbia in the State of Maryland. The capitalization of applicant and its subsidiaries on a consolidated basis, including surplus, as of August 31, 1938, and the respective percentages which the several classes of outstanding securities and surplus bear to the total capitalization, both before and after the proposed refunding, are as follows: Applicant proposes to issue and sell privately $8,500,000 aggregate principal amount of refunding mortgage bonds, 4% series due 1963 at a price of 101 percent of the principal amount thereof together with accrued interest thereon from September 1, 1938, to the date of delivery, to the following-named purchasers in principal amounts as follows: The Equitable Life Assurance Society of the United States-- $3,700,000 Total 500,000 500,000 300,000 8, 500,000 The respective purchasers have stated that they are making such purchases for investment only and have no present intention of reselling any of the bonds. The bonds will be secured by a certain open-end mortgage and deed of trust dated January 1, 1933, between Washington Gas Light Company and The Chase National Bank of the City of New York, as trustee, (The Riggs National Bank of Washington, D. C., being successor trustee), and certain supplemental indentures thereto dated January 1, 1933, March 1, 1936, and December 8, 1936, and more particularly a fourth supplemental indenture dated September 1, 1938. The lien securing the proposed bonds is subject to the prior lien of the first mortgage dated November 1, 1910, as supplemented, between Washington Gas Light Company and American Security and Trust Company, as trustee, securing an issue of general mortgage 5% 50-year gold bonds outstanding in the principal amount of $5,199,500, and, as to the respective properties covered thereby, to the prior lien of the mortgage and deed of trust of the Georgetown Gas Light Company dated August 1, 1911, to American Security and Trust Company, as trustee, securing an issue of $1,000,000 principal amount of first mortgage 5% 50-year gold bonds.2 The proceeds from the issue and sale amounting to $8,585,000 (exclusive of accrued interest) is to be deposited in trust with The Riggs National Bank of Washington, D. C., as trustee, for the redemption of all of applicant's outstanding $8,500,000 principal amount of refunding mortgage gold bonds, 5% series due 1958, at 1 In December 1936, Georgetown Gas Light Company merged with and into Washington Gas Light Company. * All of the outstanding securities of the subsidiaries (except one share of capital stock of Washington Gas Light Company of Montgomery County, Maryland) are owned and pledged by applicant under its first mortgage dated November 1, 1910, as supplemented, and its mortgage and deed of trust dated January 1, 1933, as supplemented. 1042 percent of the principal amount thereof, constituting an aggregate redemption price of $8,882,500, exclusive of accrued interest. The balance of funds necessary to be paid in connection with such redemption (including accrued interest) is to be supplied by applicant from its general funds. As a result of the proposed refunding operation, applicant estimates that (on a consolidated basis for applicant and its subsidiaries) annual interest charges and annual amortization of debt discount and expense will be reduced by $85,000 and $35,378, respectively, and that $13,000 will be saved through elimination of tax refunds to bondholders, the aggregate of which items amounts to $133,378. Partially offsetting this amount is an estimated increase of $29,091 in federal income taxes, so that net income of applicant and its subsidiaries is estimated to increase $104,286 as a result of the proposed financing. Applicant estimates that the fees or commissions and expenses in connection with the proposed financing will amount to $78,000. Included therein is a finder's fee of 12 point on the principal amount of the bonds, or $42,500, that is to be paid The First Boston Corporation for its services in negotiating the sale. Under all the circumstances of this particular case the Commission observes no reasons for finding that the fee is unreasonable. 3 The consolidated fixed capital of applicant and its subsidiaries, stated at $35,422,260 as of August 31, 1938, includes an amount of $5,926,584 representing ledger value of fixed capital not classified by prescribed amounts, and an amount of $73,746 representing ledger value of property not presently used in operations. Deducting the last two mentioned items from such fixed capital leaves a balance of $29,421,9303 representing principally tangible property of applicant and its subsidiaries. In effect, the supplemental indenture dated September 1, 1938, provides that, so long as any of the proposed 4% series bonds are outstanding, applicant cannot issue additional bonds on the basis In this connection it is noted that applicant is a subsidiary of Washington and Suburban Companies whose common shares are beneficially owned as follows: The Chase National Bank of the City of New York, 48.95 percent; Continental Illinois National Bank & Trust Company of Chicago, 30.86 percent; Harris Trust & Savings Bank of Chicago, 10.91 percent; The Public National Bank and Trust Company of New York, 6.55 percent; and the Reconstruction Finance Corporation, 2.73 percent. This amount includes an assigned value of $3,750,000 for applicant's franchise. The balance of $29,421,930 is comprised of the following: $25,906,520 representing ledger value of property included in rate base allowed by the Public Utilities Commission of the District of Columbia as of June 30, 1935 (exclusive of working capital, before deducting contributions for extensions, and prior to allocation of property used for service outside the District of Columbia), with subsequent increases for additions at cost and decreases for retirements at cost where known or estimated cost-applicable to the Washington Gas Light Company and Prince George's Gas Corporation; $3,085,360 representing ledger value of fixed capital of subsidiaries other than Prince George's Gas Corporation, and $430,050 representing uncompleted construction (all companies) at cost. of property additions if the aggregate of the outstanding debt of applicant and the bonds to be issued exceeds 70% of an adjusted amount of consolidated fixed capital, such adjusted amount being equal to $29,421,930 as of August 31, 1938. As of August 31, 1938, the combined retirement reserve of applicant and its subsidiaries amounted to $1,638,532 or 5.56 percent of the consolidated tangible property of $29,421,930. Deducting from such tangible property of $29,421,930 the depreciation reserve of $1,638,532, the ratio of total funded debt to such depreciated tangible property of $27,783,398 would be equivalent to 63.5 percent. Provisions for retirement reserve by applicant and its subsidiaries, for the 12-month period ended August 31, 1938, amounted to $459,108 or 1.56 percent of the tangible property (as described above) of $29,421,930. Giving effect to the proposed financing, applicant's gross income on a consolidated basis of $1,772,620, for the 12-month period ended August 31, 1938, affords a coverage of 2.20 for total fixed charges of $804,709 and a coverage of 1.83 for total fixed charges and preferred dividend requirements of $964,909. The Public Utilities Commission of the District of Columbia, in its Order No. 1729 dated October 21, 1938, as amended by letter of the Commission dated October 27, 1938, has authorized the issuance and sale of the proposed bonds. The Commission concludes that the proposed issue and sale of $8,500,000 principal amount of applicant's refunding mortgage bonds, 4% series due 1963, are solely for the purpose of financing the business of the applicant and have been expressly authorized by the state commission of the state in which applicant is organized and doing business. An appropriate order will accordingly issue granting the exemption applied for. The Commission deems it appropriate in the public interest and for the protection of investors and consumers that such order shall be subject to the condition that the issue and sale of the proposed bonds shall be effected in accordance with the terms and conditions of, and for the purposes represented by, said amended application. Such order shall also provide for the termination of the exemption thereby granted without further order of the Commission in the event that the express authorization by the Public Utilities Commis Applicant's provision for retirement reserve (applicable to property located within the District of Columbia) is governed by regulations of the Public Utilities Commission of the District of Columbia. 7 State, as defined in the Act, means any state of the United States or the District of Columbia. |