The information in this prospectus supplement and the prospectus is not complete and may be
changed. The storm recovery bonds may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus supplement and the prospectus are not an offer to sell nor do they seek an offer to
buy storm recovery bonds in any jurisdiction where the offer or sale is not permitted.
Filed Pursuant to Rule 424(b)(3)
Registration Nos. 333-168010 and 333-168010-01
Subject to Completion
Dated August 9, 2010
PRELIMINARY PROSPECTUS SUPPLEMENT (To Prospectus dated August 6, 2010)
$
Entergy Arkansas Restoration Funding, LLC
Issuing Entity
Senior Secured Storm Recovery Bonds
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Tranche
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Expected
Average
Life
(Years)
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Principal
Amount
Issued
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Scheduled
Final
Payment
Date
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Final
Maturity Date
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Interest
Rate
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Price to
Public
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Underwriting
Discounts
and
Commissions
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Proceeds to
the Issuing
Entity
(Before
Expenses)
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The total price to the public is $ . The
total amount of the underwriting discounts and commissions is $ . The total amount of proceeds to the issuing entity before deduction of expenses (estimated to be
$ ) is $ .
Investing in the Senior Secured Storm Recovery Bonds involves risks. Please read
Risk Factors
beginning on
page 12 of the accompanying prospectus.
Entergy Arkansas Restoration Funding, LLC is issuing
$ of Senior Secured Storm Recovery Bonds, referred to herein as the Storm Recovery Bonds. Entergy Arkansas, Inc. is the seller, initial servicer and sponsor with regard to
the Storm Recovery Bonds. The Storm Recovery Bonds are senior secured obligations of the issuing entity secured by storm recovery property, which includes the right to a special, irrevocable nonbypassable charge, known as a storm recovery charge,
paid by all retail electric customers in the certificated service territory of the sponsor as described herein. Credit enhancement for the Storm Recovery Bonds will be provided by such statutory true-up mechanism as well as by general, excess funds
and capital subaccounts held under the indenture.
In January 2009, Arkansas was struck by an ice storm, which caused widespread damage
to infrastructure and power outages throughout Entergy Arkansas certificated service territory. In response to the damage to the utility infrastructure the Arkansas legislature passed the Arkansas Electric Utility Storm Recovery Securitization
Act, or the Act, codified as Subchapter 9 of Chapter 18 of Title 23 of the Arkansas Code, authorizing the Arkansas Public Service Commission to issue financing orders allowing for the securitization of storm recovery costs.
One of the purposes of this act was to lower the cost to consumers for reconstruction after the January 2009 ice storm and future natural disasters.
The Arkansas Public Service Commission issued a financing order to the sponsor on June 16, 2010 which became final and non-appealable on July 1, 2010 and will become irrevocable upon issuance of the Storm Recovery Bonds. Pursuant to
the financing order, the sponsor established the issuing entity as a bankruptcy remote special purpose subsidiary company to issue the Storm Recovery Bonds. In the financing order, the Arkansas Public Service Commission authorized a storm recovery
charge to be imposed on all existing and future retail customers in Entergy Arkansas service territory receiving transmission or distribution service, or both from the sponsor or its successors or assignees under rate schedules approved by the
Arkansas Public Service Commission. Entergy Arkansas, Inc., as servicer, will collect storm recovery charges on behalf of the issuing entity and remit the estimated storm recovery charges to a trustee as described herein. Please read The
BondsThe Storm Recovery Property in this prospectus supplement.
The financing order requires that the Arkansas Public
Service Commission approve adjustments to storm recovery charges semi-annually to ensure that storm recovery charge collections will be sufficient to make all scheduled payments of principal, interest and other amounts in respect of the Storm
Recovery Bonds, as described further in this prospectus supplement and the accompanying prospectus.
The Arkansas Public Service
Commission guarantees that it will act pursuant to the financing order to ensure that storm recovery charge revenues are sufficient to pay on a timely basis scheduled principal and interest on the Storm Recovery Bonds. The true-up mechanism, and all
other obligations of the State of Arkansas and the Arkansas Public Service Commission set forth in the financing order, are direct, explicit, irrevocable and unconditional upon issuance of the Storm Recovery Bonds and are legally enforceable against
the State of Arkansas and the Arkansas Public Service Commission.
The Storm Recovery Bonds represent obligations only of the issuing
entity, Entergy Arkansas Restoration Funding, LLC, and do not represent obligations of the sponsor or any of its affiliates other than the issuing entity. Please read The BondsThe Storm Recovery Property, The
Collateral and Credit Enhancement in this prospectus supplement. The Storm Recovery Bonds are not a debt or general obligation of the State of Arkansas, any of its political subdivisions agencies, or instrumentalities and are not a
charge on their full faith and credit. Neither the full faith and credit nor the taxing power of the State of Arkansas is pledged to the payment of the principal of, or interest on, the Storm Recovery Bonds.
Additional information is contained in the accompanying prospectus. You should read this prospectus supplement and the accompanying prospectus
carefully before you decide to invest in the Storm Recovery Bonds. This prospectus supplement may not be used to offer or sell the Storm Recovery Bonds unless accompanied by the prospectus.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The underwriter expects to deliver the Storm Recovery Bonds through the book-entry facilities of The Depository Trust Company against payment in
immediately available funds on or about , 2010. Each bond will be entitled to interest on
and of
each year, and on the final maturity date. The first scheduled payment date is . There currently is no secondary market for the
Storm Recovery Bonds, and we cannot assure you that one will develop.
Morgan Stanley
The date of this prospectus supplement is
, 2010.
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
Until 90 days after the date of this prospectus supplement, all dealers that effect transactions in these securities, whether or not
participating in the offering described in this prospectus supplement, may be required to deliver a prospectus supplement and prospectus. This is in addition to the dealers obligation to deliver a prospectus supplement and prospectus when
acting as underwriters and with respect to their unsold allotments or subscriptions.
i
READING THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING
PROSPECTUS
This prospectus supplement and the
accompanying prospectus provide information about us, the Storm Recovery Bonds and Entergy Arkansas, Inc., or Entergy Arkansas, as seller, sponsor and initial servicer. This prospectus supplement describes the specific terms of the Storm
Recovery Bonds. The accompanying prospectus describes terms that apply only to the Storm Recovery bonds we may issue, including the Storm Recovery Bonds offered hereby.
References in this prospectus supplement and the accompanying prospectus to the terms
we
,
us
,
Entergy
Arkansas Funding
or the
issuing entity
mean Entergy Arkansas Restoration Funding, LLC, the entity which will issue the Storm Recovery Bonds. References to
Entergy Arkansas
,
EAI
, the
seller
or the
sponsor
mean Entergy Arkansas, Inc. or to any successor to the rights and obligations of Entergy Arkansas under the sale agreement referred to in this prospectus supplement and the accompanying prospectus. References to
the servicer
mean Entergy
Arkansas and any successor servicer under the servicing agreement referred to in this prospectus supplement and the accompanying prospectus. References to
Entergy
mean Entergy Corporation, the parent company of Entergy Arkansas.
Unless the context otherwise requires, the term
customer,
retail customer
or
retail electric customer
means all existing and future customers in EAIs service territory receiving transmission or distribution service, or both, from EAI or its successors or assignees under APSC approved rate
schedules as provided in the financing order. We refer to the Arkansas Public Service Commission as the
Arkansas commission
or the
APSC
. You can find a glossary of some of the other defined terms we use in this prospectus supplement
and the accompanying prospectus on page 97 of the accompanying prospectus.
We have included cross-references to sections in this prospectus supplement and the accompanying prospectus where you can find further
related discussions. You can also find references to key topics in the table of contents on the preceding page of this prospectus supplement and in the table of contents beginning on page i of the accompanying prospectus.
You should rely only on the information contained or
incorporated by reference in this prospectus supplement and the accompanying prospectus. Neither we nor any underwriter, agent, dealer, salesperson, the Arkansas commission or Entergy Arkansas has authorized anyone else to provide you with any
different information. If anyone provides you with different or inconsistent information, you should not rely on it. We are not offering to sell the Storm Recovery Bonds in any jurisdiction where the offer or sale is not permitted. The information
in this prospectus supplement is current only as of the date of this prospectus supplement.
S-1
SUMMARY OF TERMS
The following section is only a summary of selected
information and does not provide you with all the information you will need to make your investment decision. There is more detailed information in this prospectus supplement and in the accompanying prospectus. To understand all of the terms of the
offering of the Storm Recovery Bonds, carefully read this entire document and the accompanying prospectus.
Securities offered:
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$ Senior Secured Storm Recovery Bonds, or the Storm Recovery Bonds, scheduled to pay principal semi-annually in accordance
with the expected sinking fund schedule. Only the Storm Recovery Bonds are being offered through this prospectus supplement.
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Issuing entity and capital structure:
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Entergy Arkansas Restoration Funding, LLC is a direct, wholly owned subsidiary of Entergy Arkansas and a limited liability company formed under Delaware law. We were formed solely to
purchase and own storm recovery property, to issue storm recovery bonds secured by storm recovery property and to perform any activity incidental thereto. The Storm Recovery Bonds offered by this prospectus supplement and the accompanying prospectus
are the only bonds we are authorized to issue. Please read Entergy Arkansas Restoration Funding, LLC, the Issuing Entity in the accompanying prospectus.
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In addition to the storm recovery property, the assets of
the issuing entity include a capital investment by Entergy Arkansas in the amount of 0.5% of the Storm Recovery Bonds principal amount issued. This capital contribution will be held in the capital subaccount. We have also created an excess
funds subaccount to retain, until the next payment date, any amounts collected and remaining after all payments on the Storm Recovery Bonds have been made.
Our address:
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425 West Capitol Avenue,
27
th
Floor, Little Rock, Arkansas 72201
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Our telephone number:
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(501) 3775886
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Our managers:
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The following is a list of our managers as of the date of this prospectus supplement:
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Name
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Age
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Background
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Hugh T. McDonald
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President and Chief Executive Officer of Entergy Arkansas, Inc., a subsidiary of Entergy Corporation.
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Steven C. McNeal
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Vice President and Treasurer for Entergy Services, Inc., a subsidiary of Entergy Corporation.
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Tucker Raney
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Assistant General Counsel for Entergy Services, Inc., a subsidiary of Entergy Corporation.
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Albert C. King
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Director, Jurisdictional Finance for Entergy Services, Inc., a subsidiary of Entergy Corporation.
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Thomas Strauss
(Independent Manager)
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Director, Client Services of Wilmington Trust SP Services and Vice President of Wilmington Trust Company since 2001.
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S-2
Credit ratings:
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We expect that the Storm Recovery Bonds will receive credit ratings from three nationally recognized statistical rating organizations. Please read Ratings for the Storm Recovery
Bonds in the accompanying prospectus.
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The Seller, Sponsor and Servicer of the storm recovery property:
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Entergy Arkansas is a public utility engaged in the generation, transmission, distribution and sale of electric energy in the State of Arkansas. As of December 31, 2009, Entergy Arkansas
provided electric service to approximately 689,380 retail customers, respectively, in its service territory.
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Entergy Arkansas is an operating subsidiary of Entergy Corporation, a Delaware corporation based in New Orleans, Louisiana. Entergy is an
integrated energy company engaged primarily in electric power production and retail distribution operations. Neither Entergy Arkansas nor Entergy nor any other affiliate (other than us) is an obligor of the Storm Recovery Bonds.
Entergy Arkansas address:
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425 West Capitol Avenue, Little Rock, Arkansas 72201
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Entergy Arkansas telephone number:
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(501) 377-4000
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Use of proceeds:
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Paid to Entergy Arkansas to reduce the amount of recoverable storm recovery costs, as determined by the APSC. Please read Use of Proceeds in the accompanying prospectus.
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Bond structure:
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Sinking fund bond; tranche A-1 expected average life years, is scheduled to pay principal semi-annually. Please read
Expected Amortization Schedule in this prospectus supplement.
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Trustee:
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The Bank of New York Mellon, a New York banking corporation.
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Trustees experience:
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The Bank of New York Mellon currently serves as indenture trustee and trustee for numerous securitization transactions involving pools of utility company receivables that are structurally
similar to the storm recovery charges.
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Average life profile:
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Stable. Prepayment is not permitted; there is no prepayment risk. Extension risk is possible but is expected to be statistically insignificant. Please read Weighted Average Life
Sensitivity in this prospectus supplement and Weighted Average Life and Yield Considerations for the Storm Recovery Bonds in the accompanying prospectus.
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Optional redemption:
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None. Non-call for the life of the Storm Recovery Bonds.
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Minimum denomination:
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$100,000, or integral multiples of $1,000 in excess thereof, except for one bond which may be of a smaller denomination.
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Credit/security:
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Pursuant to the financing order issued by the Arkansas commission, the irrevocable right to impose, bill, collect and receive a nonbypassable storm recovery charge from all retail electric
customers (approximately 689,380 customers as of December 31, 2009) who receive transmission or distribution service in Entergy Arkansas service territory. Please read The ActEntergy Arkansas and other utilities may
securitize financing costsStorm Recovery Charges Are Nonbypassable in the accompanying prospectus. The Act requires that storm recovery charges be set and adjusted to collect amounts sufficient to pay principal, interest and other
amounts related to the Storm Recovery Bonds on a timely basis. Please read Credit EnhancementTrue-Up Mechanism in this prospectus supplement, as well as the chart entitled Parties to the Transaction and
Responsibilities, The Act and Description of the Storm Recovery PropertyCreation of Storm Recovery Property; Financing Order in the accompanying prospectus.
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The storm recovery property securing the Storm Recovery
Bonds is not a pool of receivables. It consists of all of Entergy Arkansas rights and interests under the financing order transferred to us in connection with the issuance of the Storm Recovery Bonds, including the right to impose, bill,
collect and receive nonbypassable storm recovery charges and the right to implement the true-up mechanism. The Act authorizes the creation of storm recovery property pursuant to the financing order. The storm recovery property is protected by the
State Pledge in the Act described below.
The
Storm Recovery Bonds are secured only by our assets, consisting principally of the storm recovery property relating to the Storm Recovery Bonds and funds on deposit in the collection account for the Storm Recovery Bonds and related subaccounts. The
subaccounts consist of a capital subaccount, which will be funded at closing in the amount of 0.5% of the initial aggregate principal amount of the Storm Recovery Bonds, a general subaccount, into which the servicer will deposit all storm recovery
charge collections, and an excess funds subaccount, into which we will transfer any amounts collected and remaining on a payment date after all payments to bondholders and other parties have been made. Amounts on deposit in each of these subaccounts
will be available to make payments on the Storm Recovery Bonds on each payment date. For a description of the storm recovery property, please read The BondsThe Storm Recovery Property in this prospectus supplement.
State Pledge:
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The State of Arkansas and its agencies, including the APSC, has pledged in the Act that the State will not alter the provisions of the Act that make storm recovery charges irrevocable,
binding and nonbypassable charges not take or permit any action that impairs or would impair the value of the storm recovery property, or except for adjustments discussed in Entergy Arkansas Financing OrderTrue-ups and
The Servicing AgreementThe Storm Recovery Charge
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S-4
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Adjustment Process, in the accompanying prospectus, reduce, alter, or impair the storm recovery charges to be imposed, collected and remitted to storm recovery bondholders until the
principal, interest and premium, if any, and any other charges incurred and contracts to be performed in connection with the storm recovery bonds have been paid and performed in full. The State Pledge does not preclude any limitation or alteration
of the Act or a financing order if full compensation is made by law for the full protection of the storm recovery charges collected pursuant to a financing order and of the holders of the storm recovery bonds. Please read The ActEntergy
Arkansas and Other Utilities May Securitize Financing Costs in the accompanying prospectus.
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The true-up mechanism:
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The Act authorizes, and the financing order requires that the servicer will make mandatory true-up adjustments semi-annually (or quarterly during the period between the scheduled final maturity
and the legal final maturity of the Storm Recovery Bonds) to ensure that storm recovery charge collections will be sufficient to make all scheduled payments of principal, interest and other amounts in respect of the storm recovery bonds during the
next two payment periods (approximately 12 months) and to replenish any draws upon the capital subaccount. The Act does not cap the level of storm recovery charges that may be imposed on retail electric customers as a result of the true-up process.
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The APSC must be given at least 15
days notice prior to implementing the true-up adjustment. In the event any correction to a true-up adjustment due to mathematical errors in the calculation of the adjustment or otherwise is necessary, it will be made in a future true-up
adjustment.
The financing order provides that
the true-up mechanism and all other obligations of the State of Arkansas and the APSC set forth in the financing order are direct, explicit, irrevocable and unconditional upon issuance of the Storm Recovery Bonds, and are legally enforceable against
the State of Arkansas and the APSC.
Please read
Credit EnhancementTrue-Up Mechanism in this prospectus supplement and The ActEntergy Arkansas and Other Utilities May Securitize Financing Costs and The Servicing AgreementThe Storm Recovery
Charge Adjustment Process in the accompanying prospectus.
Nonbypassable storm recovery charges:
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The APSC has a right from the government of the State of Arkansas to require the imposition on, and collection of storm recovery charges from, all existing and future retail electric
customers receiving transmission or distribution service from EAI located within EAIs service territory. Please read Risk FactorsOther Risks Associated with an Investment in the Storm Recovery BondsTechnological
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S-5
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Change Might Make Alternative Energy Sources More Attractive in the Future, The ActEntergy Arkansas and Other Utilities May Securitize Financing CostsStorm Recovery
Charges Are Nonbypassable. The storm recovery charges are applied to retail electric customers individually and are adjusted among customer classes as necessary under the true-up mechanism. Please read The Storm Recovery Charges in
this prospectus supplement and Entergy Arkansas Financing Order and The Servicing AgreementThe Storm Recovery Charge Adjustment Process in the accompanying prospectus.
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Initial storm recovery charge as a
percentage of customers total
electricity bill:
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The initial storm recovery charge would represent approximately 1% of the total bill received by a 1,000 kWh residential customer of Entergy Arkansas in its service territory as of July 1,
2010.
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Priority of distributions:
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On each payment date for the Storm Recovery Bonds, the trustee will allocate or pay all amounts on deposit in the general subaccount of the collection account in the following order of priority:
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1.
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payment of the trustees fees, expenses and any outstanding indemnity amounts not to exceed $1,000,000 in any 12-month period,
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2.
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payment of the servicing fee relating to the Storm Recovery Bonds, plus any unpaid servicing fees from prior payment dates,
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payment of the administration fee, and a pro rata portion of the fees of our independent manager(s), in each case with any unpaid administration or management fees from
prior payment dates,
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4.
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payment of all of our other ordinary periodic operating expenses relating to the Storm Recovery Bonds, such as accounting and audit fees, rating agency fees, legal fees
and certain reimbursable costs of the servicer under the servicing agreement,
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5.
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payment of the interest then due on the Storm Recovery Bonds, including any past-due interest,
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6.
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payment of the principal then required to be paid on the Storm Recovery Bonds as a result of acceleration upon an event of default or at final maturity,
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7.
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payment of the principal then scheduled to be paid on the Storm Recovery Bonds in accordance with the expected sinking fund schedule, including any previously unpaid
scheduled principal,
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8.
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payment of any of our remaining unpaid operating expenses and any remaining amounts owed pursuant to the basic documents, including all remaining indemnity amounts owed
to the trustee,
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9.
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replenishment of any amounts drawn from the capital subaccount,
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S-6
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10.
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if there is a positive balance after making the foregoing allocations, so long as no event of default has occurred and is continuing, release to us of an amount not to
exceed the lesser of any remaining balance and the investment earnings on amounts in the capital subaccount,
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11.
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allocation of the remainder, if any, to the excess funds subaccount, and
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12.
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after the Storm Recovery Bonds have been paid in full and discharged, the balance, together with all amounts in the capital subaccount and the excess funds subaccount,
to us free and clear of the lien of the indenture.
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Please read Credit EnhancementHow Funds in the Collection Account Will Be Allocated in this prospectus supplement. The
annual servicing fee for the Storm Recovery Bonds payable to Entergy Arkansas or any affiliate thereof while it is acting as servicer shall not at any time exceed $145,000. If a servicer not affiliated with Entergy Arkansas is appointed, the
servicing fee will be negotiated by the successor servicer and us; however, the Arkansas commission must approve the appointment of, and any annual servicing fee in excess of 1.25% of the aggregate initial principal amount of all outstanding Storm
Recovery Bonds for any replacement servicer. In addition, the servicing fee for any replacement servicer may not exceed 1.25% of the aggregate initial principal amount of all outstanding Storm Recovery bonds unless the rating agency condition is
satisfied.
Issuance of additional storm recovery bonds:
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Entergy Arkansas has in the past and may in the future sell storm recovery property to one or more entities other than us in connection with the issuance of a new issuance of storm recovery
bonds without your prior review or approval. Please read Entergy Arkansas Financing Order in the accompanying prospectus. We may not issue additional storm recovery bonds in addition to the Storm Recovery Bonds offered hereby.
Entergy Arkansas may not sell storm recovery property to other entities issuing storm recovery bonds if the issuance would result in the credit ratings on any outstanding issuance of Storm Recovery Bonds being reduced or withdrawn. Please read
Description of the Storm Recovery Bonds in the accompanying prospectus.
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Tax treatment:
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Storm Recovery Bonds will be treated as debt of Entergy Arkansas, our sole member, for U.S. federal income tax purposes. Please read Material U.S. Federal Income Tax
Consequences in the accompanying prospectus.
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ERISA eligible:
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Yes; please read ERISA Considerations in the accompanying prospectus.
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S-7
Payment dates and interest accrual:
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Semi-annually, and , and on the final maturity
date, or, if any such day is not a business day, the following business day. Interest will be calculated on a 30/360 basis. The first scheduled payment date is .
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Expected settlement:
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, 2010, settling flat. DTC, Clearstream and Euroclear.
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Risk factors:
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You should consider carefully the risk factors beginning on page 12 the accompanying prospectus before you invest in the Storm Recovery Bonds.
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S-8
THE BONDS
We will issue the Storm Recovery Bonds and secure their
payment under an indenture that we will enter into with The Bank of New York Mellon, as trustee, referred to in this prospectus supplement and the accompanying prospectus as the
trustee
. We will issue the Storm Recovery Bonds in minimum
denominations of $100,000 and in integral multiples of $1,000, except that we may issue one bond in a smaller denomination. The expected average life in years, initial principal amount, scheduled final payment date, final maturity date and interest
rate of the Storm Recovery Bonds are stated in the table below.
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Tranche
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Expected
Average Life
(Years)
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Principal Amount
Issued
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Scheduled Final
Payment Date
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Final
Maturity Date
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Interest Rate
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The scheduled final payment date of the Storm Recovery Bonds is the date when the outstanding principal balance of the Storm Recovery
Bonds will be reduced to zero if we make payments according to the expected amortization schedule. The final maturity date of Storm Recovery Bonds is the date when we are required to pay the entire remaining unpaid principal balance, if any, of all
outstanding Storm Recovery Bonds. The failure to pay principal of the Storm Recovery Bonds by the final maturity date is an event of default under the indenture, but the failure to pay principal of the Storm Recovery Bonds by the scheduled final
payment date will not be an event of default under the indenture. Please read Description of the Storm Recovery BondsInterest and Principal on the Storm Recovery Bonds and Events of Default; Rights Upon Event of
Default in the accompanying prospectus.
The Collateral
The Storm Recovery Bonds will be secured under the indenture by all of our assets relating to the Storm Recovery Bonds. The principal
asset pledged will be the storm recovery property relating to the Storm Recovery Bonds, which is a present property right created under the Act and by the financing order issued by the Arkansas commission on June 16, 2010, referred to in this
prospectus supplement as the
financing order
. The collateral also consists of:
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our rights under the sale agreement pursuant to which we will acquire the storm recovery property, under the administration agreement and under all
bills of sale delivered by Entergy Arkansas pursuant to the sale agreement,
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our rights under the true-up mechanism,
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our rights under the servicing agreement and any subservicing, agency, intercreditor or collection agreements executed in connection with the servicing
agreement,
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the collection account for the Storm Recovery Bonds and all subaccounts of the collection account,
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all of our other property related to the Storm Recovery Bonds, other than any cash released to us by the trustee on any payment date from earnings on
amounts in the capital subaccount,
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all present and future claims, demands, causes and choses in action in respect of any or all of the foregoing, and
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all payments on or under and all proceeds in respect of any or all of the foregoing.
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Please read Security for the Storm Recovery Bonds
in the accompanying prospectus.
The Storm Recovery Property
In general terms, all of the rights and interests of Entergy Arkansas that relate to the Storm Recovery Bonds under the financing order,
upon transfer to us pursuant to the sale agreement, are referred to in this prospectus supplement and the accompanying prospectus as the
storm recovery property
. The storm recovery property
S-9
includes the right to impose, bill, collect and receive, through the storm recovery charges payable by retail electric customers within Entergy Arkansas service territory which receive
transmission or distribution service from Entergy Arkansas, an amount sufficient to pay principal and interest and to make other deposits in connection with the Storm Recovery Bonds. During the twelve months ended December 31, 2009,
approximately 32% of Entergy Arkansas total retail electric deliveries in its service territory were to industrial customers, 29.2% were to commercial customers, 37.5% were to residential customers and 1.3% were to government and municipal
customers.
We will purchase the storm recovery
property from Entergy Arkansas. The storm recovery property is not a receivable, and the principal collateral securing the Storm Recovery Bonds is not a pool of receivables. Storm recovery charges authorized in the financing order that relate to the
Storm Recovery Bonds are irrevocable and not subject to reduction, impairment, or adjustment by further action of the Arkansas commission, except for true-up adjustments to correct overcollections or undercollections and to provide the expected
recovery of amounts sufficient to timely provide all payments of debt service and other required amounts and charges in connection with the Storm Recovery Bonds. Please read Credit EnhancementTrue-Up Mechanism in this prospectus
supplement. All revenues and collections resulting from storm recovery charges provided for in the financing order that relate to the Storm Recovery Bonds are part of the storm recovery property.
The storm recovery property relating to the Storm Recovery
Bonds is described in more detail under The Sale AgreementSale and Assignment of the Storm Recovery Property in the accompanying prospectus.
The servicer will bill and collect storm recovery charges allocable to the Storm Recovery Bonds from retail electric customers and will
remit the collections to the trustee as described herein.
Entergy Arkansas will include the storm recovery charges in their bills to their customers but are not required to show the storm recovery
charges as a separate line item or footnote. However, Entergy Arkansas will be required to provide annual written notice to their customers that storm recovery charges have been included in their customers bills. Prior to the date on which
Entergy Arkansas remits the storm recovery charges to the servicer, the storm recovery charges may be commingled with Entergy Arkansas other funds, although Entergy Arkansas will remit collections no later than the third business day following
the receipt of such storm recovery charges.
For
information on how electric service to retail electric customers may be terminated, please read Risk FactorsServicing RisksLimits on rights to terminate service might make it more difficult to collect the storm recovery
charges in the accompanying prospectus. Because the amount of storm recovery charge collections will depend largely on the amount of electricity consumed by customers within Entergy Arkansas service territory, the amount of collections
may vary substantially from year to year. Please read The Seller, Initial Servicer and Sponsor in the accompanying prospectus.
Under the Act and the indenture, the trustee or the holders of the Storm Recovery Bonds have the right to foreclose or otherwise enforce
the lien on the storm recovery property. However, in the event of foreclosure, there is likely to be a limited market, if any, for the storm recovery property. Therefore, foreclosure might not be a realistic or practical remedy. Please read
Risk FactorsRisk Associated with the Unusual Nature of the Storm Recovery PropertyForeclosure of the trustees lien on the storm recovery property securing the storm recovery bonds might not be practical, and acceleration of
the storm recovery bonds before maturity might have little practical effect in the accompanying prospectus.
Financing Order
On June 16, 2010, the APSC issued its financing order which authorized Entergy Arkansas to securitize and cause to be issued storm
recovery bonds, in the estimated aggregate principal amount of $126.3 million, consisting of: (i) $121.7 million in storm recovery costs (including $11.5 million of carrying costs through September 23, 2010, which was the expected issuance
date of the storm recovery bonds used in the financing
S-10
order), plus (ii) costs of issuing the storm recovery bonds in an estimated amount of $4.6 million. We sometimes refer to these costs of issuance as upfront financing costs. To
the extent the storm recovery bonds are issued on a date other than September 23, 2010, the financing order requires Entergy Arkansas to adjust the carrying costs for the difference in the number of days and the 7% per annum rate of return
as of the effective date of new rates, either greater than or less than assumed in the calculation based on the projected issuance date of September 23, 2010. The Arkansas commission guarantees that it will act pursuant to the financing order
to ensure that expected storm recovery charge revenues are sufficient to timely pay scheduled principal and interest on the Storm Recovery Bonds and all ongoing financing costs. The financing order provides that the true-up mechanism and all other
obligations of the State of Arkansas and the Arkansas commission set forth in the financing order are irrevocable upon issuance of the Storm Recovery Bonds, and are legally enforceable against the State of Arkansas and the Arkansas commission.
Please read Entergy Arkansas Financing Order in the accompanying prospectus.
Payment and Record Dates and Payment Sources
Beginning , we will make payments on the Storm Recovery Bonds
semi-annually on and of each year, and on the final maturity date, or, if any such day is not a business
day, the following business day (each, a
payment date
). So long as the Storm Recovery Bonds are in book-entry form, on each payment date, we will make interest and principal payments to the persons who are the holders of record as of the
business day immediately prior to that payment date, which is referred to as the record date. If we issue certificated Storm Recovery Bonds to beneficial owners of the Storm Recovery Bonds, the record date will be the last business day
of the calendar month immediately preceding the payment date. On each payment date, we will pay amounts on outstanding Storm Recovery Bonds from amounts available in the collection account and the related subaccounts held by the trustee in the
priority set forth under Credit EnhancementHow Funds in the Collection Account Will Be Allocated in this prospectus supplement. These available amounts, which will include amounts collected by the servicer for us with respect to
the storm recovery charges, are described in greater detail under Security for the Storm Recovery BondsHow Funds in the Collection Account Will Be Allocated and The Servicing AgreementRemittances to Collection
Account in the accompanying prospectus.
Principal Payments
On each payment date, we will pay principal of the Storm
Recovery Bonds to the bondholders equal to the sum, without duplication, of:
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the unpaid principal amount of any Storm Recovery Bond whose final maturity date is on that payment date, plus
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the unpaid principal amount of any Storm Recovery Bond upon acceleration following an event of default relating to the Storm Recovery Bonds, plus
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any overdue payments of principal, plus
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any unpaid and previously scheduled payments of principal, plus
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the principal scheduled to be paid on any Storm Recovery Bond on that payment date,
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but only to the extent funds are available in the collection account
(including all applicable subaccounts) after payment of certain of our fees and expenses and after payment of interest as described below under Interest Payments.
However, we will not pay principal of the Storm Recovery
Bonds on any payment date if making the payment would reduce the principal balance to an amount lower than the amount specified in the expected amortization schedule below on that payment date. Any excess funds remaining in the collection account
after payment of principal, interest, applicable fees and expenses and payments to the applicable subaccounts of the
S-11
collection account will be retained in the excess funds subaccount until applied on a subsequent payment date. The entire unpaid principal balance of the Storm Recovery Bonds will be due and
payable on the final maturity date.
If an event
of default under the indenture has occurred and is continuing, the trustee or the holders of a majority in principal amount of the Storm Recovery Bonds then outstanding may declare the unpaid principal balance of the Storm Recovery Bonds, together
with accrued interest thereon, to be due and payable. However, the nature of our business will result in payment of principal upon an acceleration of the Storm Recovery Bonds being made as funds become available. Please read Risk
FactorsRisk Associated With the Unusual Nature of the Storm Recovery PropertyForeclosure of the trustees lien on the storm recovery property securing the storm recovery bonds might not be practical, and acceleration of the storm
recovery bonds before maturity might have little practical effect and Risk FactorsRisk Related to Limited Source of FundsYou may experience material payment delays or incur a loss on your investment in the storm recovery
bonds because the source of funds for payment is limited in the accompanying prospectus.
The expected sinking fund schedule below sets forth the corresponding principal payment that is scheduled to be made on each payment date
for the Storm Recovery Bonds from the issuance date to the scheduled final payment date. Similarly, the expected amortization schedule below sets forth the principal balance that is scheduled to remain outstanding on each payment date for the Storm
Recovery Bonds from the issuance date to the scheduled final payment date.
S-12
EXPECTED SINKING FUND SCHEDULE*
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Semi-Annual Payment Date
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Tranche A-1
Principal
Repayment
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Initial Tranche Balance
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*
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Dollar amounts in the schedule are rounded to the nearest dollar.
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We cannot assure you that the principal balance of the Storm Recovery Bonds will be reduced at the rate indicated in the table above. The
actual reduction in principal balance may occur more slowly. The actual reduction in principal balance will not occur more quickly than indicated in the above table, except in the case of acceleration due to an event of default under the indenture.
The Storm Recovery Bonds will not be in default if principal is not paid as specified in the schedule above unless the principal is not paid in full on or before the final maturity date of the Storm Recovery Bonds.
S-13
EXPECTED AMORTIZATION SCHEDULE*
Outstanding Principal Balance
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Semi-Annual Payment Date
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Tranche A-1
Balance
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Closing Date
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*
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Dollar amounts in the schedule are rounded to the nearest dollar.
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On each payment date, the trustee will make principal payments to the extent the principal balance of the Storm Recovery Bonds exceeds the
amount indicated for that payment date in the table above and to the extent of funds available in the collection account after payment of certain of our fees and expenses and after payment of interest.
S-14
Weighted Average Life Sensitivity
Weighted average life refers to the average amount of time
from the date of issuance of a security until each dollar of principal of the security has been repaid to the investor. The rate of principal payments on the Storm Recovery Bonds, the aggregate amount of each interest payment on the Storm Recovery
Bonds and the actual final payment date of the Storm Recovery Bonds will depend on the timing of the servicers receipt of storm recovery charges from retail electric consumers. Please read Weighted Average Life and Yield Considerations
for the Storm Recovery Bonds in the accompanying prospectus for further information. Changes in the expected weighted average life of the Storm Recovery Bonds in relation to variances in actual energy consumption levels (retail electric sales)
from forecast levels are shown below. Severe stress cases on electricity consumption result in no measurable changes in the weighted average life of the Storm Recovery Bonds.
Weighted Average Life Sensitivity
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Tranche
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Expected
Weighted
Avg. Life
(WAL)
(yrs)
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WAL
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-5%
( Standard Deviations from Mean)
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-15%
( Standard Deviations from Mean)
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WAL
(yrs)
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Change
(days)*
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WAL
(yrs)
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Change
(days)*
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A-1
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Number is rounded to whole days.
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Assumptions
For the purposes of preparing the above chart, the following assumptions, among others, have been made: (i) the forecast error stays
constant over the life of the Storm Recovery Bonds and is equal to an overestimate of electricity consumption of 5.0% ( standard deviations from mean) or 15%
( standard deviations from mean) and (ii) the Servicer makes timely and accurate filings to true-up the storm recovery charges semi-annually. There can be no assurance that
the weighted average life of the Storm Recovery Bonds will be as shown.
Fees and Expenses
As set forth in the table below, we are obligated to pay fees to the servicer, the trustee, our independent manager and Entergy Arkansas
as administrator. The following table illustrates this arrangement.
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Recipient
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Source of Payment
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Fees and Expenses Payable
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Servicer
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Storm recovery charge collections and investment earnings.
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$145,000 per annum (so long as servicer is Entergy Arkansas or an affiliate), plus expenses
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Trustee
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Storm recovery charge collections and investment earnings.
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Approximately $4,000 per annum, plus expenses
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Independent Manager
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Storm recovery charge collections and investment earnings.
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$5,000 per annum, plus expenses
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Administration Fee
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Storm recovery charge collections and investment earnings.
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$100,000 per annum, plus expenses
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If a servicer not affiliated with Entergy Arkansas is appointed, the servicing fee will be negotiated by the successor servicer and us;
however, the Arkansas commission must approve the appointment of any replacement servicer, and the annual servicing fee may not exceed 1.25% of the aggregate initial principal amount of all outstanding Storm Recovery bonds without the approval of
the Arkansas commission and the satisfaction of the rating agency condition.
S-15
The storm recovery charges will also be used by the trustee for the payment of our other
ordinary periodic operating expenses relating to the Storm Recovery Bonds, such as accounting and audit fees, rating agency fees, legal fees and certain reimbursable costs of the servicer under the servicing agreement.
Distribution Following Acceleration
Upon an acceleration of the maturity of the
Storm Recovery Bonds, the total outstanding principal balance of and interest accrued on the Storm Recovery Bonds will be payable, without priority of interest over principal or principal over interest. Although principal will be due and payable
upon acceleration, the nature of our business will result in principal being paid as funds become available. Please read Risk FactorsRisk Associated with the Unusual Nature of the Storm Recovery PropertyForeclosure of the
trustees lien on the storm recovery property securing the storm recovery bonds might not be practical, and acceleration of the storm recovery bonds before maturity might have little practical effect and Risk FactorsRisk
Related to Limited Source of FundsYou may experience material payment delays or incur a loss on your investment in the storm recovery bonds because the source of funds for payment is limited in the accompanying prospectus.
Interest Payments
Holders of Storm Recovery Bonds will receive interest at the
rate as set forth in the table on page S-9 of this prospectus supplement.
Interest on the Storm Recovery Bonds will accrue from and including the date of issuance to but excluding the first payment date, and
thereafter from and including the previous payment date to but excluding the applicable payment date until the Storm Recovery Bonds have been paid in full, at the interest rate indicated in the table on page S-9 of this prospectus supplement. Each
of those periods is referred to as an interest accrual period. On each payment date, we will pay interest on the Storm Recovery Bonds equal to the following amounts:
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if there has been a payment default, any interest payable but unpaid on any prior payment date, together with interest on such unpaid interest, if any,
and
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accrued interest on the principal balance of the Storm Recovery Bonds as of the close of business on the preceding payment date, or the date of the
original issuance of the Storm Recovery Bonds, after giving effect to all payments of principal made on the preceding payment date, if any.
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We will pay interest on the Storm Recovery Bonds before we pay principal on the Storm Recovery Bonds. Please read Description of the
Storm Recovery BondsInterest and Principal on the Storm Recovery Bonds in the accompanying prospectus. Please read Credit EnhancementCollection Account and Subaccounts in this prospectus supplement. We will calculate
interest on the Storm Recovery Bonds on the basis of a 360-day year of twelve 30-day months.
Optional Redemption
We may not voluntarily redeem the Storm Recovery Bonds prior to the scheduled final payment date.
THE TRUSTEE
The Bank of New York Mellon is a New York banking
corporation. The Bank of New York Mellon has acted as indenture trustee on numerous asset-backed securities transactions involving pools of utility company receivables that are structurally similar to the storm recovery charges. The address of the
principal office of The Bank of New York Mellon is 101 Barclay Street, Floor 4W, New York, New York 10286.
S-16
CREDIT ENHANCEMENT
Credit enhancement for the Storm Recovery Bonds is intended
to protect you against losses or delays in scheduled payments on your Storm Recovery Bonds. Please read Risk FactorsRisk Related to Limited Source of FundsYou may experience material payment delays or incur a loss on your
investment in the storm recovery bonds because the source of funds for payment is limited in the accompanying prospectus.
True-Up Mechanism
The Act mandates that storm recovery charges be adjusted at least annually to correct any overcollections or undercollections in the
preceding period and to ensure the timely payment of scheduled debt service for the storm recovery bonds and other required amounts and charges in connection with the storm recovery bonds. The financing order requires that the servicer will make
mandatory true-up adjustments semi-annually (or quarterly during the period between the scheduled final maturity and the legal final maturity of the Storm Recovery Bonds) to ensure that storm recovery charge collections will be sufficient to make
all scheduled payments of principal, interest and other amounts in respect of the storm recovery bonds during the next two payment periods (approximately 12 months) and to replenish any draws upon the capital subaccount. The first semi-annual
true-up adjustment will be made approximately months following the issuance of the Storm Recovery Bonds. The Act does not cap the level of storm recovery charges that may be
imposed on retail electric customers as a result of the true-up process. The servicer is required to use its most recent billing determinants, estimates of ongoing financing costs and forecasted uncollectibles in making each true-up calculation.
The APSC must be given at least 15 days
notice prior to implementing the true-up adjustment. In the event any correction to a true-up adjustment due to mathematical errors in the calculation of the adjustment or otherwise is necessary, it will be made in a future true-up adjustment.
The financing order provides that the true-up
mechanism and all other obligations of the State of Arkansas and the APSC set forth in the financing order are direct, explicit, irrevocable and unconditional upon issuance of the Storm Recovery Bonds and are legally enforceable binding covenants of
the State of Arkansas and the APSC. Please read The Storm Recovery Charges below and Entergy Arkansas Financing Order and The Servicing AgreementThe Storm Recovery Charge Adjustment Process in the
accompanying prospectus.
Collection Account and Subaccounts
We will establish a collection account for the Storm Recovery Bonds, to be held by the trustee, to hold the capital
contribution from Entergy Arkansas and estimated storm recovery charges daily remitted to the trustee by the servicer. The collection account will consist of various subaccounts, including the following:
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the general subaccount,
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the excess funds subaccount, and
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the capital subaccount.
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For administrative purposes, the subaccounts may, but need not, be established as separate accounts which will be recognized individually
as subaccounts and collectively as the collection account. Withdrawals from and deposits to these subaccounts will be made as described below in this prospectus supplement and under Security for the Storm Recovery BondsDescription of
Indenture Accounts and How Funds in the Collection Account Will Be Allocated in the accompanying prospectus.
S-17
The General Subaccount.
The trustee will deposit collected storm recovery charges
remitted to it by the servicer with respect to the Storm Recovery Bonds into the general subaccount. On each payment date, the trustee will allocate amounts in the general subaccount as described under How Funds in the Collection Account
Will Be Allocated below.
The Excess
Funds Subaccount.
The excess funds subaccount will be funded with collected storm recovery charges and earnings on amounts in the collection account, other than earnings on amounts allocated to the capital subaccount, in excess of the amount
necessary to pay on any payment date:
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fees and expenses, including any indemnity payments, of the trustee, our independent manager(s), the servicer and the administrator and other fees,
expenses, costs and charges,
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principal and interest payments on the Storm Recovery Bonds required to be paid or scheduled to be paid on that payment date, and
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any amount required to replenish any amounts drawn from the capital subaccount.
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The periodic adjustments of the storm recovery charges will
be calculated to eliminate any amounts held in the excess funds subaccount. These adjustments will occur semi-annually to ensure all scheduled payments of principal, interest and other amounts in respect of the storm recovery bonds during the next
two payment periods (approximately 12 months) and to replenish any draws upon the capital subaccount. Under additional limited circumstances, these adjustments may occur more frequently, but not more frequently than every three months following the
scheduled final payment date of the Storm Recovery Bonds.
If amounts available in the general subaccount are not sufficient to pay the fees and expenses due on any payment date, to make required
or scheduled payments to the bondholders and to replenish any amounts drawn from the capital subaccount, the trustee will first draw on any amounts in the excess funds subaccount to make those payments.
The Capital Subaccount.
On the date we issue the Storm
Recovery Bonds, Entergy Arkansas will deposit $ into the capital subaccount as a capital contribution to us, which is equal to 0.5% of the initial outstanding principal balance
of the Storm Recovery Bonds. The capital contribution has been set at a level sufficient to obtain the ratings on the Storm Recovery Bonds described in Ratings for the Storm Recovery Bonds in the accompanying prospectus. If amounts
available in the general subaccount and the excess funds subaccount are not sufficient to make required or scheduled payments to the bondholders and to pay the fees and expenses specified in the indenture due on any payment date, the trustee will
draw on amounts in the capital subaccount to make those payments.
How Funds in the Collection Account Will Be Allocated
Amounts remitted by the servicer to the trustee with respect
to the Storm Recovery Bonds, including any indemnity amounts, and all investment earnings on amounts in the subaccounts in the collection account will be deposited into the general subaccount of the collection account.
On each payment date, the trustee will allocate or pay all
amounts on deposit in the general subaccount of the collection account for the Storm Recovery Bonds in the following priority:
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payment of the trustees fees, expenses and any outstanding indemnity amounts, not to exceed $1,000,000 in any 12-month period;
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payment of the servicing fee relating to the Storm Recovery Bonds described in the table on page S-15 of this prospectus supplement, plus any unpaid servicing fees from
prior payment dates,
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payment of the administration fee and of the fees of our independent manager(s), each as described in the table on page S-15 of this prospectus supplement in each case
with any unpaid administration or management fees from prior payment dates,
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S-18
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payment of all of our other ordinary periodic operating expenses relating to the Storm Recovery Bonds, such as accounting and audit fees, rating agency fees, legal fees
and certain reimbursable costs of the servicer under the servicing agreement,
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payment of the interest then due on the Storm Recovery Bonds, including any past-due interest,
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payment of the principal then required to be paid on the Storm Recovery Bonds as a result of acceleration upon an event of default or at final maturity,
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payment of the principal then scheduled to be paid on the Storm Recovery Bonds in accordance with the expected sinking fund schedule set forth on page S-13 of this
prospectus supplement, including any previously unpaid scheduled principal,
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payment of any of our remaining unpaid operating expenses and any remaining amounts owed pursuant to the basic documents, including all remaining indemnity amounts owed
to the trustee,
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9.
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replenishment of any amounts drawn from the capital subaccount,
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10.
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if there is a positive balance after making the foregoing allocations, so long as no event of default has occurred and is continuing, release to us of an amount not to
exceed the lesser of any remaining balance and the investment earnings on amounts in the capital subaccount,
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11.
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allocation of the remainder, if any, to the excess funds subaccount, and
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after the Storm Recovery Bonds have been paid in full and discharged, the balance, together with all amounts in the capital subaccount and the excess funds subaccount,
to us free and clear of the lien of the indenture.
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If, on any payment date, funds in the general subaccount are insufficient to make the allocations or payments contemplated by
clauses 1 through 9 of the first paragraph of this subsection, the trustee will draw from amounts on deposit in the following subaccounts in the following order up to the amount of the shortfall:
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from the excess funds subaccount for allocations and payments contemplated in clauses 1 through 9, and
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from the capital subaccount for allocations and payments contemplated in clauses 1 through 8.
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If the trustee uses amounts on deposit in the capital
subaccount to pay those amounts or make those transfers, as the case may be, subsequent adjustments to the related storm recovery charges will take into account, among other things, the need to replenish those amounts.
S-19
THE STORM RECOVERY CHARGES
Beginning on or about
, 2010, the initial storm recovery charges listed in the table below will be imposed on retail electric customers in each customer rate class at the applicable rate for the
class determined pursuant to the financing order. The servicer must remit storm recovery charges to the trustee within two business days of receipt thereof. These storm recovery charges may be adjusted semi-annually (or quarterly following the
scheduled final payment date for the Storm Recovery Bonds) by the servicer in accordance with its filings with the Arkansas commission. Please read Description of the Storm Recovery PropertyCreation of Storm Recovery Property; Financing
Order in the accompanying prospectus.
Initial Storm Recovery Charges
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Storm Recovery Charge Customer Class
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Initial
Storm Recovery Charge Rate
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Residential
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$
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per kWh
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Small General Service
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$
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per kWh
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Large General Service
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$
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per kWh
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Lighting
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$
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per kWh
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S-20
UNDERWRITING THE BONDS
Subject to the terms and conditions in the underwriting
agreement among us, Entergy Arkansas and the underwriter, Morgan Stanley & Co. Incorporated, we have agreed to sell to the underwriter, and the underwriter has agreed to purchase, the Storm Recovery Bonds.
Under the underwriting agreement, the underwriter will take
and pay for all of the Storm Recovery Bonds we offer, if any are taken.
The Underwriters Sales Price for the Bonds
The Storm Recovery Bonds sold by the underwriter to the
public will be initially offered at the prices to the public set forth on the cover of this prospectus supplement. The underwriter proposes initially to offer the Storm Recovery Bonds to dealers at such prices, less a selling concession not to
exceed the percentage listed below. The underwriter may allow, and dealers may reallow, a discount not to exceed the percentage listed below.
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Selling Concession
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Reallowance Discount
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After the initial
public offering, the public offering prices, selling concessions and reallowance discounts may change.
No Assurance as to Resale Price or Resale Liquidity for the Bonds
The Storm Recovery Bonds are a new issue of securities with
no established trading market. They will not be listed on any securities exchange. The underwriter has advised us that it intends to make a market in the Storm Recovery Bonds, but it is not obligated to do so and may discontinue market making at any
time without notice. We cannot assure you that a liquid trading market will develop for the Storm Recovery Bonds.
Various Types of Underwriter Transactions That May Affect the Price of the Bonds
The underwriter may engage in overallotment transactions,
stabilizing transactions, syndicate covering transactions and penalty bids with respect to the Storm Recovery Bonds in accordance with Regulation M under the Securities Exchange Act of 1934. Overallotment transactions involve syndicate sales in
excess of the offering size, which create a syndicate short position. Stabilizing transactions are bids to purchase the Storm Recovery Bonds, which are permitted, so long as the stabilizing bids do not exceed a specific maximum price. Syndicate
covering transactions involve purchases of the Storm Recovery Bonds in the open market after the distribution has been completed in order to cover syndicate short positions. Penalty bids permit the underwriter to reclaim a selling concession from a
syndicate member when the Storm Recovery Bonds originally sold by the syndicate member are purchased in a syndicate covering transaction. These overallotment transactions, stabilizing transactions, syndicate covering transactions and penalty bids
may cause the prices of the Storm Recovery Bonds to be higher than they would otherwise be. Neither we, Entergy Arkansas, the trustee, our managers nor the underwriter represents that the underwriter will engage in any of these transactions or that
these transactions, if commenced, will not be discontinued without notice at any time.
We expect that delivery of the Storm Recovery Bonds will be made on or about
, 2010 (such settlement being referred to as T+5). Under Rule 15c6-1 under the Exchange Act, trades in the secondary market are required to settle in three
business days (such settlement referred to as T+3), unless the parties to any such trade expressly agree otherwise. Accordingly, purchasers who wish to trade the Storm Recovery Bonds on the date of this prospectus supplement or on
the next business day will be required, by virtue of the fact that the Storm Recovery Bonds initially will settle at T+5, to specify an alternate settlement arrangement at the time of any such trade to prevent a failed settlement. Purchasers of
the Storm Recovery Bonds who wish to trade the Storm Recovery Bonds on the date of pricing or the next business day should consult their advisors.
S-21
The underwriter and certain of its affiliates have in the past provided, and may in the
future from time to time provide, investment banking and general financing and banking services to Entergy Arkansas and its affiliates for which they have in the past received, and in the future may receive, customary fees. Morgan Stanley &
Co. Incorporated, as financial advisor, has rendered certain financial advisory/structuring services to us and will receive a net fee of $ for such services, which is included in
the expenses estimate below. In addition, the underwriter may from time to time take positions in the Storm Recovery Bonds.
We estimate that the total expenses of the offering to be paid from the proceeds of the sale of the Storm Recovery Bonds will be
$ .
We and Entergy Arkansas have agreed to indemnify the underwriter against certain liabilities, including liabilities under the Securities
Act of 1933, or to contribute to payments the underwriter may be required to make in respect of those liabilities.
The underwriter is offering the Storm Recovery Bonds, subject to prior sale, when, as and if issued to and accepted by it, subject to
approval of legal matters, including the validity of the Storm Recovery Bonds and other conditions contained in the underwriting agreement, such as receipt of ratings confirmations, officers certificates and legal opinions. The underwriter
reserves the right to withdraw, cancel or modify offers to the public and to reject offers in whole or in part.
MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES
In the opinion of Sidley Austin LLP, tax counsel to us
and to Entergy Arkansas, interest paid on the Storm Recovery Bonds generally will be taxable to a U.S. Holder as ordinary interest income at the time it accrues or is received in accordance with the U.S. Holders method of accounting for U.S.
federal income tax purposes. Sidley Austin LLP has also issued an opinion, based on Revenue Procedure 2005-62, 2005-2 CB 507, that, for U.S. federal income tax purposes (1) we will not be treated as a taxable entity separate and apart
from Entergy Arkansas, our sole member, and (2) the Storm Recovery Bonds will be treated as debt of Entergy Arkansas. Each beneficial owner of a bond, by acquiring a beneficial interest, agrees to treat such bond as debt of Entergy Arkansas,
our sole member, for U.S. federal income tax purposes unless otherwise required by appropriate taxing authorities. Please read Material U.S. Federal Income Tax Consequences in the accompanying prospectus.
WHERE YOU CAN FIND MORE
INFORMATION
We are incorporating into this
prospectus supplement any future filing, which we or Entergy Arkansas, but solely in its capacity as our sponsor, make with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act (excluding any annual reports on Form 10-K). These
reports will be filed under our own name as issuing entity. Please read Where You Can Find More Information in the accompanying prospectus.
LEGAL PROCEEDINGS
There are no legal or governmental proceedings pending
against us, the sponsor, seller, trustee or servicer, or of which any property of the foregoing is subject, that is material to the holders of the Storm Recovery Bonds.
S-22
LEGAL MATTERS
Certain legal matters relating to the Storm Recovery Bonds,
including certain U.S. federal income tax matters, will be passed on by Sidley Austin LLP, counsel to Entergy Arkansas and the issuing entity, by Richards, Layton & Finger, P.A., special Delaware counsel to the issuing entity, by
Williams & Anderson PLC, regulatory Arkansas counsel to Entergy Arkansas and the issuing entity, and by Pillsbury Winthrop Shaw Pittman LLP, counsel to the underwriter. Pillsbury Winthrop Shaw Pittman LLP regularly represents affiliates of
Entergy Arkansas in connection with various legal matters not relating to the offering of the Storm Recovery Bonds.
OFFERING RESTRICTIONS IN CERTAIN JURISDICTIONS
NOTICE TO RESIDENTS OF SINGAPORE
THE UNDERWRITER ACKNOWLEDGES THAT THIS PROSPECTUS
SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS HAS NOT BEEN REGISTERED AS A PROSPECTUS WITH THE MONETARY AUTHORITY OF SINGAPORE, AND THE BONDS WILL BE OFFERED PURSUANT TO EXEMPTIONS UNDER THE SECURITIES AND FUTURES ACT, CHAPTER 289 OF SINGAPORE (THE
SECURITIES AND FUTURES ACT). ACCORDINGLY, THE BONDS MAY NOT BE OFFERED OR SOLD OR MADE THE SUBJECT OF AN INVITATION FOR SUBSCRIPTION OR PURCHASE NOR MAY THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS OR ANY OTHER DOCUMENT OR
MATERIAL IN CONNECTION WITH THE OFFER OR SALE, OR INVITATION FOR SUBSCRIPTION OR PURCHASE, OF BONDS BE CIRCULATED OR DISTRIBUTED WHETHER DIRECTLY OR INDIRECTLY TO ANY PERSON IN SINGAPORE OTHER THAN (I) TO AN INSTITUTIONAL INVESTOR UNDER SECTION
274 OF THE SECURITIES AND FUTURES ACT, (II) TO A RELEVANT PERSON PURSUANT TO SECTION 275(1) OF THE SECURITIES AND FUTURES ACT, OR ANY PERSON PURSUANT TO SECTION 275(1A) OF THE SECURITIES AND FUTURES ACT, AND IN ACCORDANCE WITH THE CONDITIONS,
SPECIFIED IN SECTION 275 OF THE SECURITIES AND FUTURES ACT, OR (III) OTHERWISE PURSUANT TO, AND IN ACCORDANCE WITH THE CONDITIONS OF, ANY OTHER APPLICABLE PROVISION OF THE SECURITIES AND FUTURES ACT.
EACH OF THE FOLLOWING PERSONS SPECIFIED IN 275 OF THE
SECURITIES AND FUTURES ACT WHICH HAS SUBSCRIBED OR PURCHASED THE BONDS, NAMELY A PERSON WHO IS:
(A) A CORPORATION (WHICH IS NOT AN ACCREDITED INVESTOR (AS DEFINED IN SECTION 4A OF THE OF THE SECURITIES AND FUTURES ACT)) THE SOLE
BUSINESS OF WHICH IS TO HOLD INVESTMENTS AND THE ENTIRE SHARE CAPITAL OF WHICH IS OWNED BY ONE OR MORE INDIVIDUALS, EACH OF WHOM IS AN ACCREDITED INVESTOR; OR
(B) A TRUST (WHERE THE TRUSTEE IS NOT AN ACCREDITED
INVESTOR) WHOSE SOLE PURPOSE IS TO HOLD INVESTMENTS AND EACH BENEFICIARY OF THE TRUST IS AN INDIVIDUAL WHO IS AN ACCREDITED INVESTOR,
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SHOULD NOTE THAT SHARES, DEBENTURES AND UNITS OF SHARES AND DEBENTURES OF THAT
CORPORATION OR THE BENEFICIARIES RIGHTS AND INTERESTS (HOWSOEVER DESCRIBED) IN THAT TRUST SHALL NOT BE TRANSFERRED WITHIN SIX MONTHS AFTER THAT CORPORATION OR THAT TRUST HAS ACQUIRED THE BONDS UNDER SECTION 275 OF THE SFA EXCEPT:
(
1)
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TO AN INSTITUTIONAL INVESTOR (FOR CORPORATIONS, UNDER SECTION 274 OF THE SECURITIES AND FUTURES ACT) OR TO A RELEVANT PERSON DEFINED IN SECTION 275(1) AND SECTION
275(1A) OF THE SECURITIES AND FUTURES ACT, RESPECTIVELY AND IN ACCORDANCE WITH THE CONDITIONS SPECIFIED IN SECTION 275 OF THE SECURITIES AND FUTURES ACT;
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(2)
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WHERE NO CONSIDERATION IS OR WILL BE GIVEN FOR THE TRANSFER;
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(3)
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WHERE THE TRANSFER IS BY OPERATION OF LAW; OR
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(
4)
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PURSUANT TO SECTION 276(7) OF THE SECURITIES AND FUTURES ACT.
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NOTICE TO RESIDENTS OF PEOPLES REPUBLIC OF CHINA
THE UNDERWRITER HAS REPRESENTED AND
AGREED THAT NEITHER IT NOR ANY OF ITS AFFILIATES HAS OFFERED OR SOLD OR WILL OFFER OR SELL ANY OF THE BONDS IN THE PEOPLES REPUBLIC OF CHINA (EXCLUDING HONG KONG, MACAU AND TAIWAN) AS PART OF THE INITIAL DISTRIBUTION OF THE BONDS.
THIS PROSPECTUS SUPPLEMENT AND THE
ACCOMPANYING PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY ANY SECURITIES IN THE PEOPLES REPUBLIC OF CHINA (EXCLUDING HONG KONG, MACAU AND TAIWAN, THE PRC) TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE THE OFFER OR SOLICITATION IN THE PRC.
THE STATE DOES NOT RESPRESENT THAT THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS MAY BE LAWFULLY DISTRIBUTED, OR THAT ANY
BONDS MAY BE LAWFULLY OFFERED, IN COMPLIANCE OF ANY APPLICABLE REGISTRATION OR OTHER REQUIREMENTS IN THE PRC, OR PURSUANT TO AN EXEMPTION AVAILABLE THEREUNDER, OR ASSUME ANY RESPONSIBILITY FOR FACILITATING ANY SUCH DISTRIBUTION OR OFFERING. IN
PARTICULAR, NO ACTION HAS BEEN TAKEN BY THE STATE WHICH WOULD PERMIT A PUBLIC OFFERING OF ANY BONDS OR THE DISTRIBUTION OF THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS IN THE PRC. ACCORDINGLY, THE BONDS ARE NOT BEING OFFERED OR SOLD
WITHIN THE PRC BY MEANS OF THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS OR ANY OTHER DOCUMENT. NEITHER THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS NOR ANY ADVERTISEMENT OR OTHER OFFERING MATERIAL MAY BE DISTRIBUTED OR
PUBLISHED IN THE PRC, EXCEPT UNDER CIRCUMSTANCES THAT WILL RESULT IN COMPLIANCE WITH ANY APPLICABLE LAWS AND REGULATIONS.
NOTICE TO RESIDENTS OF JAPAN
THE BONDS HAVE NOT BEEN AND WILL NOT BE REGISTERED UNDER THE FINANCIAL INSTRUMENTS AND EXCHANGE ACT OF JAPAN (LAW NO. 25 OF 1948, AS
AMENDED (THE FIEL)) AND, ACCORDINGLY, THE UNDERWRITER HAS REPRESENTED, WARRANTED AND
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AGREED THAT IT WILL NOT OFFER OR SELL ANY BONDS, DIRECTLY OR INDIRECTLY, IN JAPAN OR TO, OR FOR THE BENEFIT OF, ANY JAPANESE PERSON OR TO OTHERS FOR RE-OFFERING OR RESALE, DIRECTLY OR INDIRECTLY,
IN JAPAN OR TO ANY JAPANESE PERSON EXCEPT PURSUANT TO AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF, AND OTHERWISE IN COMPLIANCE WITH THE FIEL AND ANY OTHER APPLICABLE LAWS AND REGULATIONS OF JAPAN. FOR THE PURPOSES OF THIS PARAGRAPH,
JAPANESE PERSON SHALL MEAN ANY PERSON RESIDENT IN JAPAN, INCLUDING ANY CORPORATION OR OTHER ENTITY ORGANISED UNDER THE LAWS AND REGULATIONS OF JAPAN.
NOTICE TO RESIDENTS OF HONG KONG
THE UNDERWRITER HAS REPRESENTED AND AGREED THAT IT HAS NOT
ISSUED, OR HAD IN ITS POSSESSION FOR THE PURPOSE OF ISSUE, AND WILL NOT ISSUE OR HAVE IN ITS POSSESSION FOR THE PURPOSES OF ISSUE, WHETHER IN HONG KONG OR ELSEWHERE, ANY ADVERTISEMENT, INVITATION, OR DOCUMENT RELATING TO THE BONDS WHICH IS DIRECTED
AT, OR THE CONTENTS OF WHICH ARE LIKELY TO BE ACCESSED OR READ BY, THE PUBLIC IN HONG KONG (EXCEPT IF PERMITTED TO DO SO UNDER THE LAWS OF HONG KONG) OTHER THAN WITH RESPECT TO BONDS WHICH ARE OR ARE INTENDED TO BE DISPOSED OF ONLY TO PERSONS
OUTSIDE HONG KONG OR ONLY TO PROFESSIONAL INVESTORS AS DEFINED IN THE SECURITIES AND FUTURES ORDINANCE (CAP. 571 OF THE LAWS OF HONG KONG) AND ANY RULES MADE UNDER THAT ORDINANCE.
THE CONTENTS OF THIS DOCUMENT HAVE NOT BEEN REVIEWED BY
ANY REGULATORY AUTHORITY IN HONG KONG. YOU ARE ADVISED TO EXERCISE CAUTION IN RELATION TO THE OFFER OF THE BONDS. IF YOU ARE IN ANY DOUBT ABOUT ANY OF THE CONTENTS OF THIS DOCUMENT, YOU SHOULD OBTAIN INDEPENDENT PROFESSIONAL ADVICE.
NOTICE TO RESIDENTS OF THE EUROPEAN ECONOMIC AREA
NO ACTION HAS BEEN OR WILL BE TAKEN IN
ANY JURISDICTION THAT WOULD PERMIT A PUBLIC OFFERING OF ANY OF THE BONDS, OR POSSESSION OR DISTRIBUTION OF THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS OR ANY OTHER OFFERING MATERIAL, IN ANY COUNTRY OR JURISDICTION WHERE ACTION FOR
THAT PURPOSE IS REQUIRED. THE UNDERWRITER SHALL COMPLY WITH ALL RELEVANT LAWS, REGULATIONS AND DIRECTIVES IN EACH JURISDICTION IN WHICH IT PURCHASES, OFFERS, SELLS OR DELIVERS BONDS OR HAS IN ITS POSSESSION OR DISTRIBUTES THIS PROSPECTUS SUPPLEMENT
AND THE ACCOMPANYING PROSPECTUS OR ANY OTHER OFFERING MATERIAL, IN ALL CASES AT ITS OWN EXPENSE.
IN RELATION TO EACH MEMBER STATE OF THE EUROPEAN ECONOMIC AREA WHICH HAS IMPLEMENTED THE PROSPECTUS DIRECTIVE (EACH, A RELEVANT
MEMBER STATE), THE UNDERWRITER HAS REPRESENTED AND AGREED THAT WITH EFFECT FROM AND INCLUDING THE DATE ON WHICH THE PROSPECTUS DIRECTIVE IS IMPLEMENTED IN THAT RELEVANT MEMBER STATE (THE RELEVANT IMPLEMENTATION DATE) IT HAS NOT
MADE AND WILL NOT MAKE AN OFFER OF THE BONDS WHICH ARE THE SUBJECT OF THE OFFERING CONTEMPLATED BY THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS TO THE PUBLIC IN THAT RELEVANT MEMBER STATE OR, WHERE APPROPRIATE, APPROVED IN ANOTHER
RELEVANT MEMBER STATE
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AND PUBLISHED AND NOTIFIED TO THE COMPETENT AUTHORITY IN THAT RELEVANT MEMBER STATE, ALL IN ACCORDANCE WITH THE PROSPECTUS DIRECTIVE AS IMPLEMENTED IN THAT RELEVANT MEMBER STATE, UNTIL THE END
DATE SPECIFIED IN SUCH PROSPECTUS, EXCEPT THAT IT MAY, WITH EFFECT FROM AND INCLUDING THE RELEVANT IMPLEMENTATION DATE, MAKE AN OFFER OF SUCH BONDS TO THE PUBLIC IN THAT RELEVANT MEMBER STATE:
(A) TO LEGAL ENTITIES WHICH ARE AUTHORIZED OR REGULATED
TO OPERATE IN THE FINANCIAL MARKETS OR, IF NOT SO AUTHORIZED OR REGULATED, WHOSE CORPORATE PURPOSE IS SOLELY TO INVEST IN SECURITIES;
(B) TO ANY LEGAL ENTITY WHICH HAS TWO OR MORE OF (1) AN AVERAGE OF AT LEAST 250 EMPLOYEES DURING THE LAST FINANCIAL YEAR;
(2) A TOTAL BALANCE SHEET OF MORE THAN 43,000,000; AND (3) AN ANNUAL NET TURNOVER OF MORE THAN 50,000,000, AS SHOWN IN ITS LAST ANNUAL OR CONSOLIDATED ACCOUNTS;
(C) TO FEWER THAN 100 NATURAL OR LEGAL PERSONS (OTHER THAN
QUALIFIED INVESTORS AS DEFINED IN THE PROSPECTUS DIRECTIVE) SUBJECT TO OBTAINING THE PRIOR CONSENT OF THE RELEVANT UNDERWRITER OR UNDERWRITERS NOMINATED BY THE ISSUER FOR ANY SUCH OFFER; OR
(D) IN ANY OTHER CIRCUMSTANCES FALLING WITHIN ARTICLE 3(2)
OF THE PROSPECTUS DIRECTIVE,
PROVIDED THAT
NO SUCH OFFER OF THE BONDS REFERRED TO ABOVE SHALL REQUIRE THE STATE OR ANY UNDERWRITER TO PUBLISH A PROSPECTUS PURSUANT TO ARTICLE 3 OF THE PROSPECTUS DIRECTIVE OR SUPPLEMENT A PROSPECTUS PURSUANT TO ARTICLE 16 OF THE PROSPECTUS DIRECTIVE.
FOR PURPOSES OF THIS PROVISION, THE EXPRESSION
AN OFFER OF THE BONDS TO THE PUBLIC IN RELATION TO ANY BONDS IN ANY RELEVANT MEMBER STATE MEANS THE COMMUNICATION IN ANY FORM AND BY ANY MEANS OF SUFFICIENT INFORMATION ON THE TERMS OF THE OFFER AND THE BONDS TO BE OFFERED SO AS TO
ENABLE AN INVESTOR TO DECIDE TO PURCHASE OR SUBSCRIBE FOR THE BONDS, AS THE SAME MAY BE VARIED IN THAT MEMBER STATE BY ANY MEASURE IMPLEMENTING THE PROSPECTUS DIRECTIVE IN THAT MEMBER STATE, AND THE EXPRESSION PROSPECTUS DIRECTIVE MEANS
DIRECTIVE 2003/71/EC AND INCLUDES ANY RELEVANT IMPLEMENTING MEASURE IN EACH RELEVANT MEMBER STATE.
NOTICE TO RESIDENTS OF THE UNITED KINGDOM
THE UNDERWRITER HAS REPRESENTED AND AGREED THAT
(I) IT HAS ONLY COMMUNICATED OR CAUSED TO BE COMMUNICATED AND WILL ONLY COMMUNICATE OR CAUSE TO BE COMMUNICATED AN INVITATION OR INDUCEMENT TO ENGAGE IN INVESTMENT ACTIVITY (WITHIN THE MEANING OF SECTION 21 OF THE FINANCIAL SERVICES AND MARKETS
ACT 2000 (THE FSMA)) RECEIVED BY IT IN CONNECTION WITH THE ISSUE OR SALE OF THE BONDS IN CIRCUMSTANCES IN WHICH SECTION 21(1) OF THE FSMA DOES NOT APPLY TO THE STATE; AND (II) IT HAS COMPLIED AND WILL COMPLY WITH ALL APPLICABLE
PROVISIONS OF THE FSMA WITH RESPECT TO ANYTHING DONE BY IT IN RELATION TO THE BONDS IN, FROM OR OTHERWISE INVOLVING THE UNITED KINGDOM.
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PROSPECTUS
Entergy Arkansas Restoration Funding, LLC
Issuing Entity
Senior Secured Storm Recovery Bonds
Entergy Arkansas, Inc.
Seller, Initial Servicer and Sponsor
You should carefully consider the
Risk
Factors
beginning on page 12 of this prospectus before you invest in the storm recovery bonds.
We, the issuing entity, may, in the future, issue the storm recovery bonds as described in this prospectus. The bonds may have one or more tranches.
The storm recovery bonds represent only our obligations and are backed only by our assets. Entergy Arkansas, Inc. and its affiliates, other than us, are not liable for any payments on the storm recovery bonds. The storm recovery bonds are not a debt
or general obligation of the State of Arkansas, the Arkansas Public Service Commission or any other governmental agency or instrumentality and are not a charge on the full faith and credit or the taxing power of the State of Arkansas or any
governmental agency or instrumentality.
We are a special
purpose entity and own no property other than the collateral described in this prospectus. The collateral is the sole source of payment for the storm recovery bonds.
We may offer and sell the storm recovery bonds by use of this prospectus. We will provide the specific terms of any offerings in one or
more supplements to this prospectus. You should read this prospectus and the related prospectus supplement carefully before you invest in the storm recovery bonds. This prospectus may not be used to offer and sell the storm recovery bonds unless
accompanied by a prospectus supplement.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS OR THE ACCOMPANYING PROSPECTUS SUPPLEMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this prospectus is August 6, 2010.
TABLE OF CONTENTS
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iii
READING THIS PROSPECTUS AND THE ACCOMPANYING SUPPLEMENT
This prospectus is part of a registration
statement we and EAI have filed with the SEC using a shelf registration process. By using this process, we may offer the storm recovery bonds in the future. This prospectus provides you with a general description of the storm recovery
bonds we may offer. When we offer the storm recovery bonds, we will provide a supplement to this prospectus. The prospectus supplement will describe the specific terms of the offering. The prospectus supplement may also contain information that
supplements the information contained in this prospectus, and you should rely on the supplementary information in that prospectus supplement. Please read carefully this prospectus, the prospectus supplement and the information, if any, contained in
the documents we refer to in this prospectus under the heading Where You Can Find More Information.
References in this prospectus and the prospectus supplement to the terms
we
,
us
,
Entergy Arkansas Funding
or the
issuing entity
mean Entergy Arkansas Restoration Funding, LLC, the entity which will issue the storm recovery bonds. References to
Entergy Arkansas, EAI
, the
seller
or the
sponsor
refer to Entergy Arkansas, Inc. or to any
successor to the rights and obligations of EAI under the sale agreement referred to in this prospectus. References to the
servicer
refer to EAI and any successor servicer under the servicing agreement referred to in this prospectus. Unless
the context otherwise requires, the term
customer
,
retail customer
or
retail electric customer
means all existing and future customers within EAIs service territory receiving transmission or distribution service, or both,
from EAI or its successors or assignees under APSC approved rate schedules as provided in the financing order. References to the
Arkansas Commission
or
APSC
refer to the Arkansas Public Service Commission. You can find a glossary of
some of the other defined terms we use in this prospectus on page 97 of this prospectus.
We have included cross-references to sections in this prospectus where you can find further related discussions. You can also find key
topics in the table of contents on the preceding pages. Check the table of contents to locate these sections.
You should rely only on the information contained or incorporated by reference in this prospectus and the prospectus supplement. We have
not authorized anyone else to provide you with any different information. If anyone provides you with different or inconsistent information, you should not rely on it. We are not making an offer to sell the storm recovery bonds in any jurisdiction
where the offer or sale is not permitted. The information in this prospectus is current only as of the date of this prospectus.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
Some statements contained in this prospectus and
the prospectus supplement concerning expectations, beliefs, plans, objectives, goals, strategies, future events or performance and underlying assumptions and other statements which are not historical facts, including statements in the documents that
are incorporated by reference as discussed in this prospectus under the heading Where You Can Find More Information, are
forward-looking statements
within the meaning of the federal securities laws. Actual results may differ
materially from those expressed or implied by these statements. In some cases, you can identify our forward-looking statements by the words anticipate, believe, continue, could, estimate,
expect, forecast, goal, intend, may, objective, plan, potential, predict, projection, should, will, or
other similar words.
We have based our
forward-looking statements on our managements belief, expectations and assumptions based on information available to our management at the time the statements are made. We caution you that assumptions, beliefs, expectations, intentions and
projections about future events may and often do vary materially from actual results. Therefore, we cannot assure you that actual results will not differ materially from those expressed or implied by our forward-looking statements.
The following are some of the factors that could cause actual
results to differ from those expressed or implied by our forward-looking statements:
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state and federal legislative and regulatory actions or developments, including deregulation, re-regulation and restructuring of the electric utility
industry, and changes in, or changes in application of, laws or regulations applicable to other aspects of our business;
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weather variations and other natural phenomena, including hurricanes, tropical storms, ice or snow storms, floods and other weather-related events and
natural disasters, affecting retail electric customer energy usage in Entergy Arkansas service territory;
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non-payment of storm recovery charges due to financial distress of retail electric customers or Entergy Arkansas;
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the accuracy of the servicers estimates of market demand and prices for energy;
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the accuracy of the servicers estimates of industrial, commercial and residential growth in Entergy Arkansas service territory;
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changes in market demand and demographic patterns;
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the operating performance of Entergy Arkansas facilities;
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the accuracy of the servicers forecast of electrical consumption or the payment of storm recovery charges;
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the reliability of the systems, procedures and other infrastructure necessary to operate the retail electric business in Entergy Arkansas service
territory;
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national or regional economic conditions affecting retail electric customer energy usage in Entergy Arkansas service territory;
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acts of war or terrorism or other catastrophic events affecting retail electric customer energy usage in Entergy Arkansas service territory; and
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other factors we discuss in this prospectus, any prospectus supplement and any of our SEC filings.
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You should not place undue reliance on forward-looking
statements. Each forward-looking statement speaks only as of the date of the particular statement, and we undertake no obligation to update or revise any forward-looking statement, except as may be required by the federal securities laws.
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PROSPECTUS SUMMARY
This summary contains a brief description of the storm
recovery bonds we may offer by use of this prospectus. You will find a more detailed description of the terms of the offering of the storm recovery bonds following this summary.
You should carefully consider the Risk Factors beginning
on page 12 of this prospectus before you invest in the storm recovery bonds.
Summary of the Storm Recovery Bonds
The issuing entity:
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Entergy Arkansas Restoration Funding, LLC is a direct, wholly owned subsidiary of Entergy Arkansas and a limited liability company formed under Delaware law. We were formed solely to purchase
and own storm recovery property, to issue the storm recovery bonds secured by the storm recovery property and to perform any activity incidental thereto. The storm recovery bonds offered by this prospectus are the only bonds we are authorized to
issue. Please read Entergy Arkansas Restoration Funding, LLC, The Issuing Entity.
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Our address:
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425 West Capitol Avenue,
27
th
floor, Little Rock, Arkansas 72201
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Our telephone number:
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(501) 377 5886
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Seller, initial servicer and sponsor:
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Entergy Arkansas is a public utility engaged in the generation, transmission, distribution and sale of electric energy in the State of Arkansas. As of December 31, 2009, Entergy Arkansas
provided electric service to approximately 689,380 retail customers in its service territory. During the 12 months ended December 31, 2009, Entergy Arkansas total retail electric deliveries were approximately 37.5% residential, 29.2%
commercial, 32% industrial, and 1.3% government and municipal.
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Entergy Arkansas is an operating subsidiary of Entergy Corporation, referred to as
Entergy
, a Delaware corporation based in New
Orleans, Louisiana. Entergy is an integrated energy company engaged primarily in electric power production and retail distribution operations. Neither Entergy Arkansas nor Entergy nor any other affiliate (other than us) is an obligor of the storm
recovery bonds.
Entergy Arkansas address:
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425 West Capitol Avenue, Little Rock, Arkansas 72201
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Entergy Arkansas phone number:
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(501) 377 4000
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The trustee:
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The trustee for the storm recovery bonds will be named in the prospectus supplement.
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Transaction overview:
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In January 2009, Arkansas was struck by an ice storm, which caused widespread damage to infrastructure and power outages throughout Entergy Arkansas service territory. In response to the
damage to utility infrastructure, the Arkansas legislature passed the Arkansas Electric Utility Storm Recovery Securitization Act, or the
Act
, Ark. Code Ann. §§ 23-18-901
et seq.
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The Act authorizes electric utilities in Arkansas, including Entergy Arkansas, to
finance the recovery of certain costs incurred as a result of any named tropical storm or hurricane, tornado, ice or snow storm, flood, earthquake or other significant weather event or natural disaster that occurred in 2009 or thereafter, which are
referred to under the Act and in this prospectus as
storm recovery costs,
as well as the debt service costs and other costs of issuing, supporting and servicing storm recovery bonds, which are referred to under the Act and in this prospectus
as
financing costs
, through the issuance of
storm recovery bonds.
An Arkansas utility must apply to the APSC for a financing order under the Act to authorize the issuance of storm recovery bonds. We sometimes refer to storm recovery
bonds as
bonds
and when we refer to storm recovery bonds or bonds we mean bonds issued under the Act unless otherwise specified.
In order to recover storm recovery costs associated with the ice storm which affected Entergy Arkansas service area in 2009,
Entergy Arkansas applied for a financing order under the Act. On June 16, 2010, the APSC issued its financing order to Entergy Arkansas authorizing the issuance of storm recovery bonds, in an estimated principal amount of $126.3 million.
The financing order became final and non-appealable on July 1, 2010 and will become irrevocable upon issuance of the storm recovery bonds. Please read Entergy Arkansas Financing Order. Any references in this prospectus to the
financing order
, unless the context indicates otherwise, are to this financing order issued on June 16, 2010 by the APSC.
Pursuant to the Act, a financing order imposes an irrevocable, nonbypassable
storm recovery charge
on all retail customers within
a utilitys certificated Arkansas service area, for payment of the storm recovery bonds. We refer to this certificated service area as of June 16, 2010 (the date of issuance of the financing order), and as such certificated service area
may be expanded after such date, in this prospectus and the prospectus supplement as Entergy Arkansas
service territory
. The amount and terms for collections of these storm recovery charges are governed by the financing order issued by
the APSC. The Act permits an electric utility to transfer its rights and interests under a financing order, including the right to impose, bill, collect and receive storm recovery charges, to a special purpose entity formed by the electric utility
to issue debt securities secured by the right to receive revenues arising from the storm recovery charges. The electric utilitys right to receive the storm recovery charges, all revenues and collections resulting from the storm recovery
charges and its other rights and interests under a financing order, upon transfer to the issuing entity in connection with the issuance of storm recovery bonds, constitute storm recovery property. Storm recovery property continues to exist until the
storm recovery bonds are paid in full.
Under the
financing order, the APSC guarantees that it will act pursuant to the financing order to ensure that expected storm recovery
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charge revenues are sufficient to timely pay scheduled principal and interest on the storm recovery bonds and all ongoing financing costs in connection with the storm recovery bonds.
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The primary transactions
underlying the offering of the storm recovery bonds are as follows:
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EAI will sell storm recovery property to us in exchange for the net proceeds from the sale of the storm recovery bonds,
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we will sell the storm recovery bonds, which will be secured primarily by the storm recovery property, to the underwriters named in the prospectus
supplement, and
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EAI will act as the initial servicer of the storm recovery property.
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The storm recovery bonds are not obligations of the trustee,
our managers (who, under our limited liability company agreement, manage us), EAI, Entergy or of any of their affiliates other than us. The storm recovery bonds are also not obligations of the State of Arkansas or any governmental agency, authority
or instrumentality of the State of Arkansas.
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Parties to Transaction and Responsibilities
The following chart represents a general summary of the parties to the transactions underlying the offering of the storm recovery bonds,
their roles and their various relationships to the other parties:
Flow of Funds
The following chart represents a general summary of the flow of funds following issuance of the storm recovery bonds:
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As of December 31, 2009, EAI had approximately 689,380 retail customers in its service territory.
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**
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Payments of principal and interest will follow payment of certain fees and operating expenses.
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The Collateral
The storm recovery bonds will be secured by the collateral.
The principal asset pledged will be storm recovery property, which is a present property right created under the Act by a financing order issued by the APSC. The collateral will also consist of:
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our rights under the sale agreement pursuant to which we will acquire the storm recovery property, under an administration agreement and under all
bills of sale delivered by Entergy Arkansas pursuant to the sale agreement,
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our rights under the true-up mechanism,
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our rights under the servicing agreement and any subservicing, agency, intercreditor or collection agreements executed in connection with the servicing
agreement,
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the collection account for the storm recovery bonds and all related subaccounts,
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all of our other property related to the storm recovery bonds, other than any cash released to us by the trustee on any payment date from earnings on
amounts in the capital subaccount,
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all present and future claims, demands, causes and choses in action in respect of any or all of the foregoing, and
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all payments on or under and all proceeds in respect of any or all of the foregoing.
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Please read Security for the Storm Recovery
Bonds.
The Storm Recovery
Property
In general terms, all of the rights
and interests of Entergy Arkansas under a financing order that are transferred to us pursuant to the sale agreement are referred to in this prospectus and the prospectus supplement as
storm recovery property
. Storm recovery property includes
the right to impose, bill, collect and receive storm recovery charges in amounts sufficient to pay principal and interest and to make other deposits in connection with the storm recovery bonds. Storm recovery charges are payable by retail customers
within Entergy Arkansas service territory who consume electricity that is delivered through the transmission or distribution system of Entergy Arkansas (or its successors or assignees). During the twelve months ended December 31, 2009,
approximately 32% of Entergy Arkansas total retail electric deliveries in its service territory were to industrial customers, 29.2% were to commercial customers, 37.5% were to residential customers and 1.3% were to government and municipal
customers.
The storm recovery property is not a
receivable, and the principal collateral securing the storm recovery bonds will not be a pool of receivables. Storm recovery charges authorized in a financing order are irrevocable and not subject to reduction, impairment, or adjustment by further
action of the APSC, except for semi-annual true-up adjustments to correct overcollections or undercollections and to provide for the expected recovery of amounts sufficient to timely provide all payments of debt service and other required amounts
and charges in connection with the storm recovery bonds. Please read The Servicing AgreementThe Storm Recovery Charge Adjustment Process. All revenues and collections resulting from storm recovery charges are part of the storm
recovery property with respect to the storm recovery bonds.
We will purchase the storm recovery property from EAI to support the issuance of the storm recovery bonds. EAI, as the servicer, will
collect the applicable storm recovery charges through billing and collecting the storm recovery charge from its retail electric customers. EAI will then remit the received collections to the trustee not later than the second business day after
receipt of such collections.
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Interest Payments
Interest on each tranche of storm recovery bonds will accrue
from the date we issue the tranche of storm recovery bonds at the interest rate stated in the prospectus supplement. On each payment date, we will pay interest on each tranche of storm recovery bonds equal to the following amounts:
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if there has been a payment default, any interest payable but unpaid on any prior payment dates, together with interest on such unpaid interest, if
any, and
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accrued interest on the principal balance of each tranche of storm recovery bonds as of the close of business on the preceding payment date (or, in the
case of the first payment date, on the date of the original issuance of each tranche of storm recovery bonds) after giving effect to all payments of principal made on the preceding payment date, if any.
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We will pay interest on each tranche of storm recovery bonds
before we pay the principal of each tranche of storm recovery bonds. Please read Description of the Storm Recovery BondsInterest and Principal on the Storm Recovery Bonds. If there is a shortfall in the amounts available in the
applicable collection account to make interest payments, the trustee will distribute interest pro rata to each tranche of the storm recovery bonds based on the amount of interest payable on each outstanding tranche. We will calculate interest
on the basis of a 360-day year of twelve 30-day months.
Principal Payments and Record Dates and Payment Sources
On each payment date specified in the prospectus supplement
for the storm recovery bonds, we will pay amounts then due or scheduled to be paid on outstanding storm recovery bonds from amounts available in the collection account and the subaccounts held by the trustee. We will make these payments to the
holders of record of the storm recovery bonds on the related record date specified in the prospectus supplement.
Amounts available to make these payments will include the applicable storm recovery charges collected by the servicer for us since the
last payment date, as described in greater detail under Security for the Storm Recovery BondsHow Funds in the Collection Account Will Be Allocated and The Servicing AgreementRemittances to Collection Account. The
trustee will pay the principal of each tranche of storm recovery bonds in the amounts and on the payment dates specified in the expected sinking fund schedule described in the prospectus supplement, but only to the extent storm recovery charge
collections received from the servicer and amounts available from trust accounts held by the trustee are sufficient to make principal payments after payment of amounts having a higher priority of payment. Please read Security for the Storm
Recovery BondsHow Funds in the Collection Account Will Be Allocated.
Priority of Distributions
On each payment date for the storm recovery bonds, the trustee will allocate or pay all amounts on deposit in the general subaccount of
the collection account in the following order of priority:
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1.
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payment of the trustees fees, expenses and any outstanding indemnity amounts, the total amount of which may be paid in any 12-month period may be capped as set
forth in the prospectus supplement,
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2.
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payment of the servicing fee, which will be a fixed amount specified in the servicing agreement, plus any unpaid servicing fees from prior payment dates,
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3.
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payment of the administration fee, which will be a fixed amount specified in the administration agreement between us and Entergy Arkansas, and of the fees of our
independent manager(s), which will be in an amount specified in an agreement between us and our independent manager(s), in each case with any unpaid administration or management fees from prior payment dates,
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4.
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payment of all of our other ordinary periodic operating expenses, such as accounting and audit fees, rating agency fees, legal fees and certain reimbursable costs of
the servicer under the servicing agreement,
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5.
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payment of the interest then due on the storm recovery bonds, including any past-due interest,
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6.
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payment of the principal then required to be paid on the storm recovery bonds at final maturity or upon acceleration,
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7.
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payment of the principal then scheduled to be paid on the storm recovery bonds, including any previously unpaid scheduled principal,
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8.
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payment of any of our remaining unpaid operating expenses and any remaining amounts owed pursuant to the basic documents, including all remaining indemnity amounts owed
to the trustee,
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9.
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replenishment of any amounts drawn from the capital subaccount,
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10.
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if there is a positive balance after making the foregoing allocations, so long as no event of default has occurred and is continuing, release to us of an amount not to
exceed the lesser of any remaining balance and the investment earnings on amounts in the capital subaccount,
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11.
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allocation of the remainder, if any, to the excess funds subaccount, and
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12.
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after the storm recovery bonds have been paid in full and discharged, the balance, together with all amounts in the capital subaccount and the excess funds subaccount,
to us free and clear of the lien of the indenture.
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The trustees fees, expenses and indemnity amounts referred to in clause 1 above and the amount of the servicers fee
referred to in clause 2 above will be described in the prospectus supplement. The priority of distributions for the collected storm recovery charges, as well as available amounts in the subaccounts, are described in more detail under
Security for the Storm Recovery BondsHow Funds in the Collection Account Will Be Allocated, as well as in the prospectus supplement.
Credit Enhancement
Credit enhancement for the storm recovery bonds, which is intended to protect you against losses or delays in scheduled payments on the
storm recovery bonds, will be as follows:
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The APSC will approve adjustments to the storm recovery charges, upon request of the servicer, to make up for any shortfall or reduce any excess in
collected storm recovery charges. We sometimes refer to these adjustments as the
true-up adjustments
or
true-up mechanism
. These adjustments will be made semi-annually to ensure the expected recovery of amounts sufficient to timely
provide all payments of debt service and other required amounts and charges in connection with the storm recovery bonds. Please read Entergy Arkansas Financing OrderTrue-Ups.
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Collection AccountUnder the indenture, the trustee will hold a collection account for the storm recovery bonds, divided into various subaccounts.
The primary subaccounts for credit enhancement purposes are:
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the general subaccountthe trustee will deposit into the general subaccount all storm recovery charge collections remitted to it by the servicer;
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the capital subaccountEAI will deposit an amount equal to the required capital level into the capital subaccount on the date of issuance of the
storm recovery bonds; and
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the excess funds subaccountany excess amount of collected storm recovery charges and investment earnings not released to us will be held in the
excess funds subaccount.
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Each
of these subaccounts will be available to make payments on the storm recovery bonds on each payment date.
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State Pledge
The State of Arkansas and its agencies, including the APSC,
has pledged in the Act that the State will not alter the provisions of the Act that make storm recovery charges irrevocable, binding and nonbypassable charges, nor take or permit any action that impairs or would impair the value of the storm
recovery property, or, except as permitted in connection with a true-up adjustment authorized by the Act, reduce, alter or impair the storm recovery charges until the principal, interest and premium, and any other charges incurred and contracts to
be performed in connection with the storm recovery bonds, have been paid and performed in full.
Nothing in this pledge, which we refer to as the
State Pledge
, shall preclude limitation or alteration if full compensation is made
by law for the full protection of the storm recovery charges collected pursuant to a financing order and of the holders of the storm recovery bonds and any assignee or financing party entering into a contract with EAI. Please read Risk
FactorsRisks Associated with Potential Judicial, Legislative or Regulatory ActionsFuture state legislative action might attempt to reduce the value of your investment in the storm recovery bonds.
The storm recovery bonds are not a debt or a general
obligation of the State of Arkansas or any other governmental agency, instrumentality or political subdivision, nor are they a charge on the full faith and credit or the taxing power of the State of Arkansas or any governmental agency,
instrumentality or political subdivision.
Optional Redemption
We will not have the option to redeem or otherwise prepay any storm recovery bonds prior to their scheduled final payment date.
Scheduled Final Payment Dates and
Final Maturity Dates
Failure to pay a
scheduled principal payment on any payment date or the entire outstanding amount of the storm recovery bonds of any tranche by the scheduled final payment date will not result in a default with respect to that tranche. The failure to pay the entire
outstanding principal balance of the storm recovery bonds of any tranche will result in a default only if such payment has not been made by the final maturity date for the tranche. We will specify the scheduled final payment date and the final
maturity date of each tranche of storm recovery bonds in the prospectus supplement.
Ratings for the Storm Recovery Bonds
We expect that the storm recovery bonds will receive credit
ratings from three nationally recognized statistical rating organizations (NRSRO). Please read Ratings for the Storm Recovery Bonds.
Reports to Storm Recovery Bondholders
Pursuant to the indenture, the trustee will provide to the
holders of record of the storm recovery bonds regular reports prepared by the servicer containing information concerning, among other things, us and the collateral for the storm recovery bonds. Unless and until the storm recovery bonds are issued in
definitive certificated form, the reports for such bonds will be provided to The Depository Trust Company. The reports will be available to beneficial owners of the storm recovery bonds upon written request to the trustee or the servicer. These
reports will not be examined and reported upon by an independent public accountant. In addition, no independent public accountant will provide an opinion thereon. Please read Description of the Storm Recovery BondsReports to
Bondholders.
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Servicing Compensation
We will pay the servicer on each payment date the servicing
fee with respect to the storm recovery bonds. As long as Entergy Arkansas or any affiliated entity acts as servicer, this fee will be $145,000 annually. If a third-party servicer is appointed, the servicing fee will be negotiated by the successor
servicer and us; however, the APSC must approve the appointment of such third-party servicer, and the annual servicing fee may not exceed 1.25% of the aggregate initial principal amount of all outstanding storm recovery bonds without the approval of
the APSC and notification in writing to each rating agency of such action and the confirmation by S&P to the servicer, the trustee and us, that such action would not result in the credit ratings on any outstanding storm recovery bonds being
suspended, reduced or withdrawn. We sometimes refer to this condition as the
rating agency condition
. In no event will the trustee be liable for any servicing fee in its individual capacity.
U.S. Federal Income Tax Status
In the opinion of Sidley Austin LLP,
counsel to us and to Entergy Arkansas, for U.S. federal income tax purposes, the storm recovery bonds will constitute indebtedness of Entergy Arkansas, our sole member. If you purchase a beneficial interest in any storm recovery bond, you agree
by your purchase to treat the storm recovery bonds as debt of Entergy Arkansas, our sole member, for U.S. federal income tax purposes.
ERISA Considerations
Pension plans and other investors subject to ERISA may acquire the storm recovery bonds subject to specified conditions. The acquisition
and holding of the storm recovery bonds could be treated as a direct or indirect prohibited transaction under ERISA. Accordingly, by purchasing the storm recovery bonds, each investor purchasing on behalf of a pension plan will be deemed to certify
that the purchase and subsequent holding of the storm recovery bonds would be exempt from the prohibited transaction rules of ERISA. Please read ERISA Considerations.
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RISK FACTORS
Please carefully consider all the information we have
included or incorporated by reference in this prospectus and the prospectus supplement, including the risks described below and the statements in Cautionary Statement Regarding Forward-Looking Information, before deciding whether to
invest in the storm recovery bonds.
RISK RELATED TO LIMITED SOURCE OF FUNDS
You may experience material payment delays or
incur a loss on your investment in the storm recovery bonds because the source of funds for payment is limited.
The only source of funds for payment of the storm recovery bonds will be our assets, which consist of:
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the storm recovery property securing the storm recovery bonds, including the right to impose, bill, collect and receive the storm recovery charges;
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the rights under a financing order, including the statutory true-up mechanism;
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the funds on deposit in the accounts held by the trustee; and
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our rights under various contracts we describe in this prospectus.
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The storm recovery bonds are not a debt or a charge on the
full faith and credit or taxing power of the State of Arkansas or any governmental agency, instrumentality or political subdivision, nor will the storm recovery bonds be insured or guaranteed by Entergy Arkansas, including in its capacity as the
servicer, or by its parent, Entergy, any of their respective affiliates (other than us), the trustee or any other person or entity. Thus, you must rely for payment of the storm recovery bonds solely upon the Act, state and federal constitutional
rights to enforcement of the Act, the financing order, collections of the storm recovery charges and funds on deposit in the accounts held by the trustee relating to the storm recovery bonds. Our organizational documents restrict our right to
acquire other assets unrelated to the transactions described in this prospectus. Please read Entergy Arkansas Restoration Funding, LLC, The Issuing Entity.
RISKS ASSOCIATED WITH POTENTIAL JUDICIAL, LEGISLATIVE OR REGULATORY ACTIONS
We are not obligated to indemnify you for
changes in law.
Neither we nor Entergy
Arkansas will indemnify you for any changes in the law, including any federal preemption or repeal or amendment of the Act, that may affect the value of your storm recovery bonds. Entergy Arkansas will agree in the sale agreement to institute any
action or proceeding as may be reasonably necessary to block or overturn any attempts to cause a repeal, modification or amendment to the Act that would be materially adverse to us, the trustee or storm recovery bondholders. Please read The
Sale AgreementCovenants of the Seller and The Servicing AgreementServicing Standards and Covenants. However, we cannot assure you that Entergy Arkansas would be able to take this action or that any such action would be
successful.
Future judicial action
could reduce the value of your investment in the storm recovery bonds.
The storm recovery property is the creation of the Act and the financing order that has been issued by the APSC to Entergy Arkansas. There
is uncertainty associated with investing in bonds payable from an asset that depends for its existence on legislation because there is limited judicial or regulatory experience implementing and interpreting the legislation. Because the storm
recovery property is a creation of the Act, any judicial determination affecting the validity of or interpreting the Act, the storm recovery property or our ability to make payments on the storm recovery bonds might have an adverse effect on the
storm recovery bonds. A federal or state court could be asked in the future to determine whether the relevant provisions of the Act are unlawful or invalid. If the Act is invalidated, the financing order might also be invalidated.
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Other states have passed electric utility deregulation laws similar to the Act, and some of
these laws have been challenged by judicial actions. To date, none of these challenges has succeeded, but future judicial challenges might be made. An unfavorable decision regarding another states law would not automatically invalidate the Act
or the financing order, but it might provoke a challenge to the Act, establish a legal precedent for a successful challenge to the Act or heighten awareness of the political and other risks of the storm recovery bonds, and in that way may limit the
liquidity and value of the storm recovery bonds. Therefore, legal activity in other states may indirectly affect the value of your investment in the storm recovery bonds.
Future state legislative action might attempt to reduce the value of your investment in the storm recovery bonds.
Despite its pledge in the Act not to alter
the provisions of the Act that make storm recovery charges imposed by a financing order irrevocable, binding and nonbypassable, or to take or permit other actions that would impair the value of the storm recovery property or the storm recovery
charges, the Arkansas legislature might attempt to repeal or amend the Act in a manner that limits or alters the storm recovery property so as to reduce its value. For a description of the State Pledge, please read The ActEntergy
Arkansas and Other Utilities May Securitize Financing CostsState Pledge. It might be possible for the Arkansas legislature to repeal or amend the Act notwithstanding the State Pledge if the legislature acts in order to serve a
significant and legitimate public purpose. Any such action, as well as the costly and time-consuming litigation that likely would ensue, might adversely affect the price and liquidity, the dates of payment of interest and principal and the weighted
average lives of the storm recovery bonds. Moreover, the outcome of any litigation cannot be predicted. Accordingly, you might incur a loss on or delay in recovery of your investment in the storm recovery bonds.
If an action of the Arkansas legislature adversely affecting
the storm recovery property or the ability to collect storm recovery charges were considered a taking under the United States or Arkansas Constitutions, the State of Arkansas might be obligated to pay compensation for the taking.
However, even in that event, there is no assurance that any amount provided as compensation would be sufficient for you to recover fully your investment in the storm recovery bonds or to offset interest lost pending such recovery.
Further, nothing in the State Pledge precludes any limitation
or alteration of the Act or a financing order if full compensation is made by law for the full protection of the storm recovery charges collected pursuant to a financing order and of the holders of the storm recovery bonds. It is unclear what
full compensation and full protection would be afforded to holders of the bonds by the State if such limitation or alteration were attempted. Accordingly, no assurance can be given that any such provision would not adversely
affect the market value of the storm recovery bonds, or the timing or receipt of payments with respect to such bonds.
In addition, under the Arkansas Constitution, the electorate has both the power to initiate a change of law through the power of
initiative and to revoke a law through the power of referendum. The approval of any initiative or referendum requires the approval of a majority of the voters in the state casting their vote. There are also procedural requirements to place an
initiative or referendum before the voters, including the circulation of a petition and its signature by a requisite number of voters within a specified time period. The time period for challenging the Act through the referendum process has expired.
However, the voters may still exercise their right of initiative. In order to place an initiative before the voters, among other procedural requirements, at least eight percent (in the case of a statutory initiative) or ten percent (in the case of a
constitutional initiative) of the legal voters must sign and file a petition with the Secretary of State requesting that the initiative be placed on the ballot. We are unaware of any petition which has been circulated among the voters or filed with
the Secretary of State which attempts to amend the Act or otherwise which affects the issuance of or security for the storm recovery bonds. Please read The ActEntergy Arkansas and other utilities may securitize financing
costsConstitutional Matters.
The
enforcement of any rights against the State of Arkansas or the APSC under the State Pledge may be subject to the exercise of judicial discretion in appropriate cases and to the limitations on legal remedies against
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state and local governmental entities in Arkansas. These limitations might include, for example, the necessity to exhaust administrative remedies prior to bringing suit in a court, or limitations
on type and locations of courts in which the State of Arkansas or the APSC may be sued.
The APSC might attempt to take actions that could reduce the value of your investment in the storm recovery bonds.
The Act provides that following the issuance
of the storm recovery bonds, the financing order is irrevocable and that the APSC may not amend, modify or terminate the financing order by any subsequent action or reduce, impair, postpone, terminate or otherwise adjust the storm recovery charges
approved in the financing order, except for the true-up adjustments to the storm recovery charges. Further, under the financing order, the APSC guarantees that it will act pursuant to the financing order to ensure that expected storm recovery charge
revenues are sufficient to timely pay scheduled principal and interest on the storm recovery bonds and all ongoing financing costs in connection with the storm recovery bonds.
However, the APSC retains the power to adopt, revise or
rescind rules or regulations affecting Entergy Arkansas. The APSC also retains the power to interpret the financing order granted to Entergy Arkansas, and in that capacity might be called upon to rule on the meanings of provisions of the financing
order that might need further elaboration. Any new or amended regulations or orders from the APSC might attempt to affect the ability of the servicer to collect the storm recovery charges in full and on a timely basis, the rating of the storm
recovery bonds or their price and, accordingly, the amortization of such storm recovery bonds and their weighted average lives.
The servicer is required to file with the APSC, on our behalf, semi-annual adjustments of the storm recovery charges. Please read
Entergy Arkansas Financing OrderTrue-Ups and The Servicing AgreementThe Storm Recovery Charge Adjustment Process. True-up adjustment procedures in other states have been challenged in the past. Challenges to
or delays in the true-up process might adversely affect the market perception and valuation of the storm recovery bonds. Also, any litigation might materially delay storm recovery charge collections due to delayed implementation of true-up
adjustments and might result in missing payments or payment delays and lengthened weighted average life of the storm recovery bonds.
SERVICING RISKS
Inaccurate consumption forecasting or unanticipated delinquencies or charge-offs might reduce scheduled payments on the storm
recovery bonds.
The storm recovery charges
are generally assessed based on forecasted customer usage, which includes both kilowatts demanded and kilowatt-hours of electricity consumed by retail customers. The amount and the rate of storm recovery charge collections will depend in part on
actual electricity usage and the amount of collections and write-offs for each customer class. If the servicer inaccurately forecasts electricity consumption or uses inaccurate customer delinquency or charge-off data when setting or adjusting the
storm recovery charges, there could be a shortfall or material delay in storm recovery charge collections, which might result in missed or delayed payments of principal and interest and lengthened weighted average life of the storm recovery bonds.
Please read Entergy Arkansas Financing OrderTrue-Ups and The Servicing AgreementThe Storm Recovery Charge Adjustment Process.
Entergy Arkansas, the servicer, has historically forecasted customer usage based on kilowatt-hours and has historically
forecasted peak demand annually on a total company basis. The servicer does not generally forecast demand by customer rate class. Inaccurate forecasting of electricity consumption by the servicer might result from, among other things, unanticipated
weather or economic conditions, resulting in less electricity consumption than forecast; general economic conditions being worse than expected, causing retail electric customers to migrate from Entergy Arkansas service territory or reduce
their electricity consumption; the
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occurrence of a natural disaster, such as a hurricane or an act of terrorism or other catastrophic event; unanticipated changes in the market structure of the electric industry; customers
consuming less electricity than anticipated because of increased energy prices, unanticipated increases in conservation efforts or unanticipated increases in electric usage efficiency; or customers unexpectedly switching to alternative sources of
energy, including self-generation of electric power.
The servicers use of inaccurate delinquency or charge-off rates might result also from, among other things, unexpected deterioration
of the economy or the unanticipated declaration of a moratorium on terminating electric service to customers in the event of extreme weather, either of which would cause greater delinquencies or charge-offs than expected or force Entergy Arkansas to
grant additional payment relief to more customers; or any other unanticipated change in law that makes it more difficult for Entergy Arkansas to terminate service to nonpaying customers or that requires Entergy Arkansas to apply more lenient credit
standards in accepting retail electric customers. Please read The Seller, Initial Servicer and SponsorWrite Off and Delinquency Experience.
Changes to billing and collection practices may reduce the amount of funds available for payments on the bonds.
The methodology of determining the amount of
the storm recovery charge billed to each customer is specified in the financing order. Although Entergy Arkansas may not change this methodology, Entergy Arkansas, as servicer, may set, and may change, its own billing and collection arrangements
with each retail electric customer. For example, to recover part of an outstanding electricity bill, Entergy Arkansas may agree to extend a customers payment schedule or to write off the remaining portion of the bill. Similarly, the APSC may
require changes to these practices. Under the methodology specified in the financing order, this might result in an extension of the customers payment of storm recovery charges. Thus, any changes in billing and collection practices or
regulations might make it more difficult for the servicer to collect the storm recovery charge and might adversely affect the value of the storm recovery bonds and their weighted average lives. The servicing agreement provides, however, that the
servicer will not take any action that will adversely impair our interest in the storm recovery property.
Your investment in the storm recovery bonds depends on Entergy Arkansas or its successor or assignee, acting as servicer of
the storm recovery property.
Entergy
Arkansas, as servicer, will be responsible for, among other things, calculating, billing and collecting the storm recovery charges from its retail electric customers, submitting requests to the APSC to adjust these charges, monitoring the collateral
for the storm recovery bonds and taking certain actions in the event of non-payment by retail electric customers. The trustees receipt of collections in respect of storm recovery charges, which will be used to make payments on the storm
recovery bonds, will depend in part on the skill and diligence of the servicer in performing these functions. The systems the State of Arkansas and servicer have in place for storm recovery charge billings and collections might, in particular
circumstances, cause the servicer to experience difficulty in performing these functions in a timely and completely accurate manner. If the servicer fails to make collections for any reason, then the servicers payments to the trustee in
respect of the storm recovery charges might be delayed or reduced. In that event, our payments on the storm recovery bonds might be delayed or reduced.
If we replace Entergy Arkansas as the servicer, we may experience difficulties finding and using a replacement servicer.
If Entergy Arkansas ceases to service the storm
recovery property, it might be difficult to find a successor servicer. Under the financing order, the appointment of a successor servicer and the annual servicing fee payable to a successor servicer require APSC approval if it exceeds 1.25% of the
aggregate initial principal amount of all outstanding storm recovery bonds. In addition, the servicing fee for any replacement servicer may not exceed 1.25% of the aggregate initial principal amount of all outstanding storm recovery bonds unless the
rating agency
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condition is satisfied. Please read The Servicing AgreementServicing Compensation. Also, any successor servicer might have less experience and ability than Entergy Arkansas and
might experience difficulties in collecting storm recovery charges and determining appropriate adjustments to the storm recovery charges, and billing and/or payment arrangements may change, resulting in delays or disruptions of collections. A
successor servicer might charge fees that are substantially higher than the fees paid to Entergy Arkansas as servicer. In the event of the commencement of a case by or against the servicer under the United States Bankruptcy Code or similar laws, we
and the trustee might be prevented from effecting a transfer of servicing due to operation of the Bankruptcy Code. Any of these factors and others might delay the timing of payments and may reduce the value of your investment.
Limits on rights to terminate service might make
it more difficult to collect the storm recovery charges.
If the servicer is billing customers for storm recovery charges, the servicer may terminate transmission and distribution service to the
customer for non-payment of storm recovery charges pursuant to the applicable rules of the APSC. Nonetheless, Arkansas statutory requirements and the rules and regulations of the APSC, which may change from time to time, regulate and control the
right to disconnect service. Current APSC rules forbid termination during certain weather conditions, such as freezing temperatures or heat advisory conditions; other rules forbid termination of service to critical care customers. To the
extent these retail electric customers do not pay for their electric service, Entergy Arkansas will not be able to collect storm recovery charges from these retail electric customers.
Future adjustments to storm recovery charges by
customer class might result in insufficient collections.
The customers who pay storm recovery charges are divided into customer classes. Each customer class will be allocated a fixed percentage
responsibility for the revenue requirements associated with the storm recovery bonds. Please read Description of the Storm Recovery PropertyTariff; Storm Recovery Charges.
A shortfall in collections of storm recovery charges in one
customer class may be corrected by making adjustments to the storm recovery charges payable by that customer class and any other customer class. If certain customers in a class fail to pay storm recovery charges or cease to be customers, the
servicer might have to substantially increase the storm recovery charges for the remaining customers in that customer class and for other customer classes. This effect might be more extreme in the case of Entergy Arkansas industrial class
customers. Other factors, such as economic conditions, could also lead to industrial customers reducing their demand for electricity or to abandon operation of their facilities. The inability to impose and collect storm recovery charges or the
failure to collect storm recovery charges from such retail customers could lead to increases in storm recovery charges for other customers. These increases could lead to further unanticipated failures by the remaining customers to pay storm recovery
charges, thereby increasing the risk of a shortfall in funds to pay the storm recovery bonds.
RISK ASSOCIATED WITH THE UNUSUAL NATURE OF THE STORM RECOVERY PROPERTY
Foreclosure of the trustees lien on the
storm recovery property securing the storm recovery bonds might not be practical, and acceleration of the storm recovery bonds before maturity might have little practical effect.
Under the Act and the indenture, the trustee or the storm
recovery bondholders have the right to foreclose or otherwise enforce the lien on the storm recovery property securing the storm recovery bonds. However, in the event of foreclosure, there is likely to be a limited market, if any, for the storm
recovery property. Therefore, foreclosure might not be a realistic or practical remedy. Moreover, although principal of the storm recovery bonds will be due and payable upon acceleration of the storm recovery bonds before maturity, storm recovery
charges would not likely be accelerated and the nature of our business will result in principal of the storm recovery bonds being paid as funds become available. If there is an acceleration of the storm recovery bonds, all tranches of the storm
recovery bonds will be paid pro rata; therefore, some tranches might be paid earlier than expected and some tranches might be paid later than expected.
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STORM-RELATED RISK
Storm damage to Entergy Arkansas service
territory could impair payment of the storm recovery bonds.
Entergy Arkansas service territory was adversely affected by the ice storm in 2009. In response to the damage inflicted by the 2009
ice storm, the Arkansas legislature enacted the Act. Future storms could have similar or more drastic effects. Transmission and/or distribution facilities could be damaged or destroyed and usage of electricity could be interrupted temporarily,
reducing the collections of storm recovery charges. There could be longer-lasting weather-related adverse effects on residential and commercial development and economic activity in Entergy Arkansas service territory, which could cause the
per-kWh storm recovery charge to be greater than expected. Legislative action adverse to the bondholders might be taken in response, and such legislation, if challenged as violative of the State Pledge, might be defended on the basis of public
necessity. Please read The ActThe Act authorizes utilities to recover storm-related costs through the issuance of bonds and Entergy Arkansas and other utilities may securitize financing costsState Pledge in
this prospectus.
RISKS ASSOCIATED WITH POTENTIAL BANKRUPTCY PROCEEDINGS OF THE SELLER OR THE SERVICER
For a more detailed discussion of the following bankruptcy
risks, please read How a Bankruptcy May Affect Your Investment.
The servicer will commingle the storm recovery charges with other revenues it collects, which might obstruct access to the
storm recovery charges in case of the servicers bankruptcy and reduce the value of your investment in the storm recovery bonds.
The servicer will be required to remit to the trustee the storm recovery charge collections it receives within two business days. The
servicer will not segregate the storm recovery charges from the other funds it collects from retail electric customers or its general funds. The storm recovery charges will be segregated only when the servicer pays them to the trustee.
Despite this requirement, the servicer might fail to pay the
full amount of the storm recovery charges to the trustee or might fail to do so on a timely basis. This failure, whether voluntary or involuntary, might materially reduce the amount of storm recovery charge collections available to make payments on
the storm recovery bonds.
The Act provides that
the priority of a lien and security interest perfected in storm recovery property is not impaired by the commingling of the funds arising from storm recovery charges with any other funds. In a bankruptcy of the servicer, however, a bankruptcy court
might rule that federal bankruptcy law takes precedence over the Act and might decline to recognize our right to collections of the storm recovery charges that are commingled with other funds of the servicer as of the date of bankruptcy. If so, the
collections of the storm recovery charges held by the servicer as of the date of bankruptcy would not be available to pay amounts owing on the storm recovery bonds. In this case, we would have only a general unsecured claim against the servicer for
those amounts, which is a creditors claim against a debtor without a priority for payment and for which the creditor holds no security or collateral. This decision could cause material delays in payments of principal or interest, or losses, on
your storm recovery bonds and could materially reduce the value of your investment in the storm recovery bonds.
The bankruptcy of Entergy Arkansas or any successor seller might result in losses or delays in payments on the storm recovery
bonds.
The Act and the financing order
provide that as a matter of Arkansas state law:
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the rights and interests of a selling utility under the financing order, including the right to impose, bill, collect and receive storm recovery
charges, are contract rights of the seller,
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the seller may make a present transfer of its rights under the financing order, including the right to impose, bill, collect and receive future storm
recovery charges that retail customers do not yet owe,
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upon the transfer to us, the rights will become storm recovery property, and storm recovery property constitutes a present property right, even though
the imposition and collection of storm recovery charges depend on further acts that have not yet occurred, and
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a transfer of the storm recovery property from the seller or its affiliate, to us, under an agreement that expressly states the transfer is a sale or
other absolute transfer, is a true sale of the storm recovery property and not a pledge of the storm recovery property (other than for federal or state income tax purposes) to secure a financing by the seller.
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These provisions are important to maintaining payments on the
storm recovery bonds in accordance with their terms during any bankruptcy of Entergy Arkansas. In addition, the transaction has been structured with the objective of keeping us legally separate from Entergy Arkansas and its affiliates in the event
of a bankruptcy of Entergy Arkansas or any such affiliates.
A bankruptcy court generally follows state property law on issues such as those addressed by the state law provisions described above.
However, a bankruptcy court does not follow state law if it determines that the state law is contrary to a paramount federal bankruptcy policy or interest. If a bankruptcy court in a Entergy Arkansas bankruptcy refused to enforce one or more of the
state property law provisions described above, the effect of this decision on you as a beneficial owner of the storm recovery bonds might be similar to the treatment you would receive in a Entergy Arkansas bankruptcy if the storm recovery bonds had
been issued directly by Entergy Arkansas. A decision by the bankruptcy court that, despite our separateness from Entergy Arkansas, our assets and liabilities and those of Entergy Arkansas should be consolidated would have a similar effect on you as
a bondholder.
We have taken steps together with
Entergy Arkansas, as the seller, to reduce the risk that in the event the seller or an affiliate of the seller were to become the debtor in a bankruptcy case, a court would order that our assets and liabilities be substantively consolidated with
those of Entergy Arkansas or an affiliate. Nonetheless, these steps might not be completely effective, and thus if Entergy Arkansas or an affiliate of the seller were to become a debtor in a bankruptcy case, a court might order that our assets and
liabilities be consolidated with those of Entergy Arkansas or an affiliate of the seller. This might cause material delays in payment of, or losses on, your storm recovery bonds and might materially reduce the value of your investment in the storm
recovery bonds. For example:
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without permission from the bankruptcy court, the trustee might be prevented from taking actions against Entergy Arkansas or recovering or using funds
on your behalf or replacing Entergy Arkansas as the servicer,
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the bankruptcy court might order the trustee to exchange the storm recovery property for other property, of lower value,
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tax or other government liens on Entergy Arkansas property might have priority over the trustees lien and might be paid from collected
storm recovery charges before payments on the storm recovery bonds,
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the trustees lien might not be properly perfected in the collected storm recovery property collections prior to or as of the date of Entergy
Arkansas bankruptcy, with the result that the storm recovery bonds would represent only general unsecured claims against Entergy Arkansas,
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the bankruptcy court might rule that neither our property interest nor the trustees lien extends to storm recovery charges in respect of
electricity consumed after the commencement of Entergy Arkansas bankruptcy case, with the result that the storm recovery bonds would represent only general unsecured claims against Entergy Arkansas,
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we and Entergy Arkansas might be relieved of any obligation to make any payments on the storm recovery bonds during the pendency of the bankruptcy case
and might be relieved of any obligation to pay interest accruing after the commencement of the bankruptcy case,
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Entergy Arkansas might be able to alter the terms of the storm recovery bonds as part of its plan of reorganization,
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the bankruptcy court might rule that the storm recovery charges should be used to pay, or that we should be charged for, a portion of the cost of
providing electric service, or
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the bankruptcy court might rule that the remedy provisions of the sale agreement are unenforceable, leaving us with an unsecured claim for actual
damages against Entergy Arkansas that may be difficult to prove or, if proven, to collect in full.
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Furthermore, if Entergy Arkansas enters bankruptcy proceedings, it might be permitted to stop acting as servicer and it may be difficult
to find a third party to act as servicer. The failure of the servicer to perform its duties or the inability to find a successor servicer might cause payment delays or losses on your investment in the storm recovery bonds. Also, the mere fact of a
servicer or seller bankruptcy proceeding might have an adverse effect on the resale market for the storm recovery bonds and on the value of the storm recovery bonds.
The sale of the storm recovery property might be
construed as a financing and not a sale in a case of Entergy Arkansas bankruptcy which might delay or limit payments on the storm recovery bonds.
The Act provides that the characterization of a transfer of storm recovery property as a sale or other absolute transfer will not be
affected or impaired by treatment of the transfer as a financing for federal or state tax purposes or financial reporting purposes. We and Entergy Arkansas will treat the transaction as a sale under applicable law, although for financial reporting
and income tax purposes the transaction is intended to be treated as a financing. In the event of a bankruptcy of Entergy Arkansas, a party in interest in the bankruptcy might assert that the sale of the storm recovery property to us was a financing
transaction and not a sale or other absolute transfer and that the treatment of the transaction for financial reporting and tax purposes as a financing and not a sale lends weight to that position. If a court were to characterize the
transaction as a financing, we expect that we would, on behalf of ourselves and the trustee, be treated as a secured creditor of Entergy Arkansas in the bankruptcy proceedings, although a court might determine that we only have an unsecured claim
against Entergy Arkansas. Even if we had a security interest in the storm recovery property, we would not likely have access to the storm recovery charge collections during the bankruptcy and would be subject to the risks of a secured creditor in a
bankruptcy case, including the possible bankruptcy risks described in the immediately preceding risk factor. As a result, repayment of the storm recovery bonds might be significantly delayed and a plan of reorganization in the bankruptcy might
permanently modify the amount and timing of payments to us of the storm recovery charge collections and therefore the amount and timing of funds available to us to pay storm recovery bondholders.
If the servicer enters bankruptcy proceedings,
the collections of the storm recovery charges held by the servicer as of the date of bankruptcy might constitute preferences, which means these funds might be unavailable to pay amounts owing on the storm recovery bonds.
In the event of a bankruptcy of the servicer, a party in
interest might take the position that the remittance of funds prior to bankruptcy of the servicer, pursuant to the servicing agreement or an intercreditor agreement, constitutes a preference under bankruptcy law if the remittance of those funds was
deemed to be paid on account of a preexisting debt. If a court were to hold that the remittance of funds constitutes a preference, any such remittance within 90 days of the filing of the bankruptcy petition could be avoidable, and the funds
could be required to be returned to the bankruptcy estate of the servicer. To the extent that storm recovery charges have been commingled with the general funds of the servicer, the risk that a court would hold that a remittance of funds was a
preference would increase. In this case, we or the trustee would merely be an unsecured creditor of the servicer. If any funds were required to be returned to the bankruptcy estate of the servicer, we would expect that the amount of any future storm
recovery charges would be increased through the true-up mechanism to recover such amount.
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Claims against Entergy Arkansas or any successor seller might be limited in the
event of a bankruptcy of the seller.
If the
seller were to become a debtor in a bankruptcy case, claims, including indemnity claims, by us against the seller under the sale agreement and the other documents executed in connection with the sale agreement could be unsecured claims and would be
disposed of in the bankruptcy case. In addition, the bankruptcy court might estimate any contingent claims that we have against the seller and, if it determines that the contingency giving rise to these claims is unlikely to occur, estimate the
claims at a lower amount. A party in interest in the bankruptcy of the seller might challenge the enforceability of the indemnity provisions in the sale agreement. If a court were to hold that the indemnity provisions were unenforceable, we would be
left with a claim for actual damages against the seller based on breach of contract principles, which would be subject to estimation and/or calculation by the court. We cannot give any assurance as to the result if any of the above-described actions
or claims were made. Furthermore, we cannot give any assurance as to what percentage of their claims, if any, unsecured creditors would receive in any bankruptcy proceeding involving the seller.
The bankruptcy of Entergy Arkansas or any
successor seller might limit the remedies available to the trustee.
Upon an event of default of the storm recovery bonds under the indenture, the Act permits the trustee to enforce the security interest in
the storm recovery property in accordance with the terms of the indenture. In this capacity, the trustee is permitted to request the Pulaski County (Arkansas) Circuit Court to order the sequestration and payment to the bondholders of all revenues
arising with respect to the storm recovery property. There can be no assurance, however, that the Pulaski County (Arkansas) Circuit Court would issue this order after a Entergy Arkansas bankruptcy in light of the automatic stay provisions of
Section 362 of the United States Bankruptcy Code. In that event, the trustee would be required to seek an order from the bankruptcy court lifting the automatic stay to permit this action by the Arkansas court, and an order requiring an
accounting and segregation of the revenues arising from the storm recovery property. There can be no assurance that a court would grant either order. Any failure to grant such order could result in the losses or material delays in payment on your
storm recovery bonds and could materially reduce the value of your investment.
OTHER RISKS ASSOCIATED WITH AN INVESTMENT IN THE STORM RECOVERY BONDS
Entergy Arkansas indemnification
obligations under the sale and servicing agreements are limited and might not be sufficient to protect your investment in the storm recovery bonds.
Entergy Arkansas is obligated under the sale agreement to indemnify us and the trustee, for itself and on behalf of the storm recovery
bondholders, only in specified circumstances and will not be obligated to repurchase any storm recovery property in the event of a breach of any of its representations, warranties or covenants regarding the storm recovery property. Similarly,
Entergy Arkansas is obligated under the servicing agreement to indemnify us, the trustee, for itself and on behalf of the storm recovery bondholders, and the APSC only in specified circumstances. Please read The Sale Agreement and
The Servicing Agreement.
Neither the
trustee nor the storm recovery bondholders will have the right to accelerate payments on the storm recovery bonds as a result of a breach under the sale agreement or servicing agreement, absent an event of default under the indenture as described in
Description of the Storm Recovery BondsEvents of Default; Rights Upon Event of Default. Furthermore, Entergy Arkansas might not have sufficient funds available to satisfy its indemnification obligations under these agreements, and
the amount of any indemnification paid by Entergy Arkansas might not be sufficient for you to recover all of your investment in the storm recovery bonds. In addition, if Entergy Arkansas becomes obligated to indemnify storm recovery bondholders, the
ratings on the storm recovery bonds will likely be downgraded as a result of the circumstances causing the breach and the fact that storm recovery bondholders will be unsecured creditors of Entergy Arkansas with respect to any of these
indemnification amounts.
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Entergy Arkansas may cause the issuance of additional storm recovery bonds
through another affiliated entity.
Entergy
Arkansas may in the future sell storm recovery property to one or more entities other than us in connection with the issuance of a new issuance of storm recovery bonds, in any such case without your prior review or approval. Any new issuance may
include terms and provisions that would be unique to that particular issue. We may not issue additional storm recovery bonds. Entergy Arkansas will likely serve as servicer for any new issuance.
Entergy Arkansas may not sell storm recovery property to
other entities issuing storm recovery bonds if the issuance would result in the credit ratings on any outstanding series of storm recovery bonds being reduced or withdrawn. In the event a customer does not pay in full all amounts owed under any bill
including storm recovery charges, Entergy Arkansas, as servicer, is required to allocate any resulting shortfalls in storm recovery charges ratably based on the amounts of storm recovery charges owing in respect of the bonds, amounts owing to us and
any amounts owing to any subsequently created affiliate of Entergy Arkansas which issues storm recovery bonds. However, we cannot assure you that a new issuance would not cause reductions or delays in payments on your storm recovery bonds.
Entergy Arkansas ratings might
affect the market value of the storm recovery bonds.
A downgrading of the credit ratings on the debt of Entergy Arkansas might have an adverse effect on the market value of your storm
recovery bonds.
Technological change
might make alternative energy sources more attractive in the future.
Technological developments might result in the introduction of economically attractive alternatives to purchasing electricity through
Entergy Arkansas transmission or distribution facilities for increasing numbers of retail customers. Manufacturers of self-generation facilities may develop smaller-scale, more fuel-efficient generating units that can be cost-effective options
for a greater number of retail customers. Technological developments might allow greater numbers of retail customers to avoid storm recovery charges under such provisions, which may reduce the total number of retail customers from which storm
recovery charges will be collected.
The absence of a secondary market for the storm recovery bonds might limit your ability to resell your storm recovery bonds.
The underwriters for the storm recovery
bonds might assist in resales of the storm recovery bonds, but they are not required to do so. A secondary market for the storm recovery bonds might not develop. If a secondary market does develop, it might not continue or it might not be
sufficiently liquid to allow you to resell any of your storm recovery bonds. Please read Plan of Distribution.
You might receive principal payments for your storm recovery bonds later than you expect.
The amount and the rate of collection of the storm recovery
charges for the storm recovery bonds, together with the storm recovery charge adjustments, will generally determine whether there is a delay in the scheduled repayments of storm recovery bond principal. If those adjustments are not timely and
accurate, you might experience a delay in payments of principal and interest and a decrease in the value of your investment in the storm recovery bonds.
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THE ACT
The Act authorizes utilities to recover
storm-related costs through the issuance of bonds.
In January 2009, an ice storm caused widespread damage to Entergy Arkansas service territory. The ice storm resulted in widespread
power outages, significant damage to distribution, transmission, and generation infrastructure, and the loss of sales during the power outages. In response to the damage caused by the ice storm, the Arkansas legislature passed the Arkansas Electric
Utility Storm Recovery Securitization Act, codified as Subchapter 9 of Chapter 18 of Title 23 of the Arkansas Code (Ark. Code Ann. §§ 23-18-901
et seq.
), authorizing the Arkansas Commission to issue
financing orders allowing for the securitization of storm recovery costs and financing costs.
The Act authorizes electric utilities in Arkansas, including Entergy Arkansas, to finance the recovery of certain costs incurred as a
result of any named tropical storm or hurricane, tornado, ice or snow storm, flood, earthquake or other significant weather event or natural disaster that occurred in 2009 or thereafter, which are referred to under the Act and in this prospectus as
storm recovery costs, as well as debt service and other costs of issuing, supporting and servicing storm recovery bonds, which are referred to under the Act and in this prospectus as financing costs, through the issuance of storm recovery bonds. An
Arkansas utility must apply to the APSC for a financing order under the Act to authorize the issuance of storm recovery bonds. Entergy Arkansas applied for a financing order under the Act, which was issued by the APSC on June 16, 2010. The
financing order became final and non-appealable on July 1, 2010 and will become irrevocable upon issuance of the storm recovery bonds.
Entergy Arkansas and other utilities may securitize financing costs
We May Issue Storm Recovery Bonds to Recover Entergy
Arkansas Storm Recovery Costs.
The
Act authorizes the APSC to issue financing orders approving the issuance of storm recovery bonds to permit an electric utility to recover storm recovery costs, including cost of carrying storm recovery costs on the books of the utility as well as
costs of funding storm recovery reserves. A utility, its successors or a third-party assignee of a utility may issue storm recovery bonds. The Act requires the proceeds of the storm recovery bonds to be used for the purposes of recovering, financing
or refinancing APSC approved storm recovery costs as well as the payment of upfront financing costs (i.e. costs associated with the issuance of the storm recovery bonds). The storm recovery bonds are secured by and payable from storm recovery
property, which includes the right to impose, bill, collect and receive storm recovery charges. Under the Act, storm recovery costs are to be allocated to customer classes as provided in the financing order. Storm recovery charges can be imposed
only when and to the extent that storm recovery bonds are issued.
The Act contains a number of provisions designed to facilitate the securitization of storm recovery costs and financing costs.
Creation of Storm Recovery Property.
The Act authorizes the creation of storm
recovery property pursuant to a financing order. The electric utilitys right to receive the storm recovery charges, all revenues and collections resulting from the storm recovery charges and its other rights and interests under a financing
order, upon transfer to the issuing entity in connection with the issuance of storm recovery bonds, constitute storm recovery property. Storm recovery property continues to exist until the storm recovery bonds and all associated financing costs are
paid in full.
A Financing Order is
Irrevocable.
Upon issuance of the storm
recovery bonds, a financing order, together with the storm recovery charges authorized in the financing order, is irrevocable and not subject to reduction, impairment, or adjustment by the
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APSC, except for adjustments pursuant to the Act in order to correct overcollections or undercollections and to provide that sufficient funds are available to provide on a timely basis for
payments of debt service and other required amounts in connection with the storm recovery bonds. Although a financing order is irrevocable, the Act allows for applicants to apply for one or more new financing orders to provide for retiring and
refunding storm recovery bonds if such retirement or refunding would result in lower storm recovery charges.
State Pledge.
Under the Act, the State of Arkansas and its agencies, including the APSC, has pledged, for the benefit and protection of storm recovery
bondholders and Entergy Arkansas, that the State will not alter the provisions of the Act that make storm recovery charges irrevocable, binding and nonbypassable charges nor take or permit any action that impairs or would impair the value of the
storm recovery property, or, except for adjustments discussed in Entergy Arkansas Financing OrderTrue-ups and The Servicing AgreementThe Storm Recovery Charge Adjustment Process, reduce, alter, or impair the
storm recovery charges to be imposed, collected and remitted to storm recovery bondholders until the principal, interest and premium, if any, and any other charges incurred and contracts to be performed in connection with the storm recovery bonds
have been paid and performed in full. The State Pledge does not preclude any limitation or alteration of the Act or a financing order if full compensation is made by law for the full protection of the storm recovery charges collected pursuant to a
financing order and of the holders of the storm recovery bonds. Please read Risk FactorsRisks Associated with Potential Judicial, Legislative or Regulatory Actions.
Constitutional Matters.
To date, no federal or Arkansas cases addressing the repeal
or amendment of securitization provisions analogous to those contained in the Act have been decided. There have been cases in which federal courts have applied the Contract Clause of the United States Constitution and Arkansas courts (to the extent
addressed by such courts) have applied the Contract Clause of the Arkansas Constitution to strike down legislation regarding similar matters, such as legislation reducing or eliminating taxes, public charges or other sources of revenues servicing
other types of bonds issued by public instrumentalities or private issuers, or otherwise substantially impairing or eliminating the security for bonds or other indebtedness. Based upon this case law, Sidley Austin LLP expects to deliver an
opinion, prior to the closing of an offering of the storm recovery bonds described in a prospectus supplement accompanying this prospectus, to the effect that the language of the State Pledge constitutes a contractual relationship with the
bondholder and therefore the storm recovery bondholders (or the trustee acting on their behalf) could, absent a demonstration that such action was necessary to serve a significant and legitimate public purpose, challenge successfully the
constitutionality under the United States Constitution of any act by the State of Arkansas (including the APSC or the voters of the State in the exercise of their initiative powers) of a legislative character to repeal or amend the Act, or to take
or refuse to take any action required under its pledge described above if the repeal or amendment or the action or inaction would limit, alter, impair or reduce the value of the storm recovery property or the storm recovery charges so as to
substantially impair (x) the terms of the indenture or the storm recovery bonds or (y) the rights and remedies of the storm recovery bondholders (or the trustee acting on their behalf) prior to the time that the storm recovery bonds are
fully paid and discharged. Based upon this case law, Williams & Anderson PLC expects to deliver an opinion, prior to the closing of an offering of the storm recovery bonds described in a prospectus supplement accompanying this prospectus,
to the effect that the State Pledge described above provides a basis upon which the bondholders (or the trustee acting on their behalf) could challenge successfully in the Arkansas state courts under the Contract Clause of the Arkansas Constitution
the constitutionality of any action by the State of Arkansas (including the APSC or the voters of the State in the exercise of their initiative powers) of a legislative character that repeals the State Pledge or limits, alters, impairs or reduces
the value of the storm recovery property so as to cause a substantial impairment under the Contract Clause of the Arkansas Constitution of (i) the terms of the indenture or the storm recovery bonds or (ii) the rights and remedies of the
bondholders (or the trustee acting on their behalf) prior to the time the storm recovery bonds are fully paid and discharged. It may be possible for the Arkansas legislature to repeal or amend the Act or for the APSC to amend or revoke the
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financing order notwithstanding the State Pledge, if the legislature or the APSC acts in order to serve a significant and legitimate public purpose, such as protecting the public health and
safety or responding to a national or regional catastrophe affecting Entergy Arkansas service territory, or if the legislature otherwise acts in the valid exercise of the states police power.
In addition, any action of the Arkansas legislature adversely
affecting the storm recovery property or the ability to collect storm recovery charges may be considered a taking under the United States or Arkansas Constitutions. Each of Sidley Austin LLP and Williams & Anderson PLC has
advised us that they are not aware of any federal or Arkansas court cases, respectively, addressing the applicability of the Takings Clause of the United States or Arkansas Constitution in a situation analogous to that which would be involved in an
amendment or repeal of the Act. It is possible that a court would decline even to apply a Takings Clause analysis to a claim based on an amendment or repeal of the Act, since, for example, a court might determine that a Contract Clause analysis
rather than a Takings Clause analysis should be applied. Assuming a Takings Clause analysis were applied under the United States Constitution, Sidley Austin LLP expects to render an opinion, prior to the closing of the offering of the storm
recovery bonds described in a prospectus supplement accompanying this prospectus, to the effect that under existing case law, the State of Arkansas would be required under the United States Constitution to pay just compensation to the bondholders if
the State (including the voters in exercise of the initiative powers) were to repeal or amend the Act, or if the APSC were to amend or revoke the financing order or take any other action in contravention of the State Pledge, in either case which
(i) permanently appropriates the storm recovery property or denies all economically productive use of the storm recovery property; or (ii) destroys the storm recovery property, other than in response to emergency conditions; or
(iii) substantially reduces, alters or impairs the value of the storm recovery property, if the law unduly interferes with the bondholders reasonable expectations arising from their investments in the storm recovery bonds. In determining
what is an undue interference, a court would consider the nature of the governmental action and weigh the public purpose served thereby against the degree to which it interferes with the legitimate property interests and distinct investment-backed
expectations of the bondholders. Assuming a Takings Clause analysis were applied under the Arkansas Constitution, Williams & Anderson PLC expects to render an opinion, prior to the closing of the offering of the storm recovery bonds
described in a prospectus supplement accompanying this prospectus, to the effect that under existing case law, an Arkansas state court would find a compensable taking under the Takings Clause of the Arkansas Constitution if (a) it concludes
that the storm recovery property is property of a type protected by the Takings Clause of the Arkansas Constitution and (b) the State of Arkansas (including the APSC or the voters in exercise of the initiative powers) takes action that, without
paying just compensation to the bondholders, (i) permanently appropriates the storm recovery property or denies all economically productive use of the storm recovery property; or (ii) destroys the storm recovery property, other than in
response to emergency conditions; or (iii) substantially reduces, alters or impairs the value of the storm recovery property, if the action unduly interferes with the bondholders reasonable investment-backed expectations. In examining
whether action of the Arkansas legislature amounts to a regulatory taking, both federal and state courts will consider the character of the governmental action and whether such action substantially advances the States legitimate governmental
interests, the economic impact of the governmental action on the bondholders, and the extent to which the governmental action interferes with distinct investment-backed expectations. There is no assurance, however, that, even if a court were to
award just compensation, it would be sufficient for you to recover fully your investment in the storm recovery bonds.
In connection with the foregoing, each of Sidley Austin LLP and Williams & Anderson PLC has advised us that issues relating
to the Contract and Takings Clauses of the United States and Arkansas Constitutions are essentially decided on a case-by-case basis and that the courts determinations, in most cases, appear to be strongly influenced by the facts and
circumstances of the particular case, and both firms have further advised us that there are no reported controlling judicial precedents that are directly on point. The opinions described above will be subject to the qualifications included in them.
The degree of impairment necessary to meet the standards for relief under a Takings Clause analysis or Contract Clause analysis could be substantially in excess of what a storm recovery bondholder would consider material.
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We and Entergy Arkansas will file a copy of each of the Sidley Austin LLP and
Williams & Anderson PLC opinions as exhibits to an amendment to the registration statement of which this prospectus is a part, or to one of our periodic filings with the SEC.
For a discussion of risks associated with potential judicial,
legislation or regulatory actions, please read Risk FactorsRisks Associated with Potential Judicial, Legislative or Regulatory Actions.
The APSC May Adjust Storm Recovery Charges.
The Act requires the APSC to provide in all financing orders a mechanism requiring that storm recovery charges be adjusted at
least annually. The purposes of these adjustments are:
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to correct any overcollections or undercollections during the preceding 12 months, and
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to ensure the timely payment as scheduled of debt service for the storm recovery bonds and other required amounts and charges in connection with the
storm recovery bonds.
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Storm Recovery Charges Are Nonbypassable.
The Act provides that the storm recovery charges are nonbypassable subject to the terms of the financing order.
Nonbypassable means that such charges are separate and apart from the utilitys base rates and must be collected from all existing and future retail customers of a utility receiving transmission or distribution service from the
utility or its successors or assignees within the utilitys service territory, as provided in the financing order.
The Act Protects the Bondholders Lien on Storm Recovery Property.
The Act provides that a valid and enforceable lien and
security interest in storm recovery property may be created only by a financing order and the execution and delivery of a security agreement in connection with the issuance of the storm recovery bonds. The security interest automatically attaches
from the time value is received by the issuer of the storm recovery bonds and, on perfection through filing of a financing statement with the Secretary of State of Arkansas, such security interest will be a continuously perfected lien and security
interest in the storm recovery property.
Upon
perfection, the statutorily created lien attaches both to storm recovery property and to all proceeds of storm recovery property, whether the storm recovery charges have accrued or not, and shall have priority in the order of filing and take
precedence over any subsequent judicial or other lien creditor. The Act provides that the transfer of an interest in storm recovery property will be perfected against all third parties, including subsequent judicial or other lien creditors, when:
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the issuance of a financing order,
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transfer and security documents have been delivered to the assignee,
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receipt of value for the storm recovery bonds and
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the applicable financing statement describing the storm recovery property has been filed with the Secretary of State of Arkansas.
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The transfer is perfected
against third parties as of the date the applicable financing statement is filed. The Act provides that priority of security interests in storm recovery property will not be impaired by:
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commingling of funds arising from storm recovery charges with other funds, or
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later modifications to the financing order or the storm recovery property, including resulting from any true-up adjustment.
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Please read Risk
FactorsRisks Associated with the Unusual Nature of the Storm Recovery Property.
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The Act Characterizes the Transfer of Storm Recovery Property as a True Sale.
The Act provides that an electric utilitys
transfer of storm recovery property is a true sale under Arkansas law and is not a secured transaction (other than for federal and state income tax purposes) and that legal and equitable title passes to the transferee, if the agreement
governing that transfer expressly states that the transfer is a sale or other absolute transfer. Please read The Sale Agreement and Risk FactorsThe Risks Associated With Potential Bankruptcy Proceedings of the Seller or the
Servicer.
ENTERGY ARKANSAS FINANCING ORDER
Entergy Arkansas Securitization Proceeding
and Financing Order
We and Entergy Arkansas
have filed the financing order with the SEC as an exhibit to the registration statement of which this prospectus forms a part. The following summary does not purport to be complete and is subject to and qualified by reference to the provisions of
the financing order.
On February 1, 2010,
Entergy Arkansas filed an application with the APSC seeking authority to securitize and cause the issuance of storm recovery bonds in the amount of approximately $127.5 million to recover storm recovery costs plus costs of issuing the storm
recovery bonds.
On June 16, 2010, the APSC
issued its financing order which authorized Entergy Arkansas to securitize and cause to be issued storm recovery bonds, in the estimated aggregate principal amount of $126.3 million, consisting of: (i) $121.7 million in storm recovery
costs (including $11.5 million of carrying costs through September 23, 2010, which was the expected issuance date of the storm recovery bonds used in the financing order), plus (ii) costs of issuing the storm recovery bonds in an
estimated amount of $4.6 million. We sometimes refer to these costs of issuance as upfront financing costs. The financing order became final and non-appealable on July 1, 2010 and will become irrevocable upon issuance of the
storm recovery bonds. To the extent the storm recovery bonds are issued on a date other than September 23, 2010, the financing order requires Entergy Arkansas to adjust the carrying costs for the difference in the number of days and the
7% per annum rate of return as of the effective date of new rates, either greater than or less than assumed in the calculation based on the projected issuance date of September 23, 2010. The financing order requires Entergy Arkansas to
update the upfront financing costs in the issuance report letter required to be submitted to the APSC not later than two business days after the issuance of the storm recovery bonds to reflect the actual issuance date and other more current
information.
Collection of Storm
Recovery Charges
The financing order
authorizes Entergy Arkansas to collect storm recovery charges from retail electric customers in Entergy Arkansas certificated service territory as it existed on June 16, 2010 (as such certificated service area may be expanded) in an
amount sufficient to provide for timely recovery of Entergy Arkansas aggregate storm recovery costs and financing costs, which include principal and interest and certain ongoing fees and expenses associated with the storm recovery bonds. There
is no cap on the level of storm recovery charges that may be imposed on customers of electricity to pay on a timely basis scheduled principal and interest on the storm recovery bonds, nor is there a time limit on the collection of storm
recovery charges. Storm recovery charges remain in effect so long as the storm recovery bonds and any related financing costs are outstanding or unpaid.
Initial Tariff
We will compute the initial storm recovery charge rates at the time of issuance of the storm recovery bonds. These rates will be final and
effective upon issuance of the storm recovery bonds without further action by the APSC. We will impose the initial storm recovery charges beginning no earlier than on the first day of the billing cycle of the revenue month next following the
issuance date of the storm recovery bonds. This date will be provided in the prospectus supplement.
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True-Ups
The Act mandates that storm recovery charges be adjusted at
least annually to correct any overcollections or undercollections in the preceding period and to ensure the timely payment of scheduled debt service for the storm recovery bonds and other required amounts and charges in connection with the storm
recovery bonds. The financing order requires that the servicer will make mandatory true-up adjustments semi-annually (or quarterly during the period between the scheduled final maturity and the legal final maturity of the last bond tranche or class)
to ensure that storm recovery charge collections will be sufficient to make all scheduled payments of principal, interest and other amounts in respect of the storm recovery bonds during the next two payment periods (approximately 12 months) and
to replenish any draws upon the capital subaccount. As stated, the Act does not cap the level of storm recovery charges that may be imposed on retail electric customers as a result of the true-up process. The servicer is required to use its most
recent billing determinants, estimates of ongoing financing costs and forecasted uncollectibles in making each true-up calculation.
The APSC must be given at least 15 days notice prior to implementing the true-up adjustment. In the event any correction to a
true-up adjustment due to mathematical errors in the calculation of the adjustment or otherwise is necessary, it will be made in a future true-up adjustment.
Commission Pledge
In the financing order, the APSC guarantees that it will act pursuant to the financing order to ensure that expected storm recovery charge
revenues are sufficient to pay on a timely basis scheduled principal and interest on the storm recovery bonds and all ongoing costs in connection with the storm recovery bonds. Such financing order, pursuant to the provisions of the Act, is
irrevocable and is not subject to reduction, impairment, postponement, termination or adjustment by further action of the APSC, except as contemplated by the periodic true-up adjustments. The financing order also provides that the true-up mechanism
and all other obligations of the State of Arkansas and the APSC set forth in the irrevocable financing order are direct, explicit, irrevocable and unconditional upon issuance of the storm recovery bonds, and are legally enforceable against the State
of Arkansas and the APSC. Please read Risks Associated With Potential Judicial, Legislative or Regulatory Actions.
Allocation
Entergy Arkansas will allocate storm recovery costs to customer classes as provided in the financing order. The allocation percentages and
methodology are described below under Description of the Storm Recovery PropertyTariff; Storm Recovery Charges and are not subject to change for the life of the storm recovery bonds.
Servicing Agreement
In the financing order, the APSC authorized Entergy
Arkansas, as the servicer, to enter into the servicing agreement described under The Servicing Agreement in this prospectus.
Binding on Successors
The financing order, together with the storm recovery charges authorized in the financing order, is binding on:
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any successor to Entergy Arkansas that provides transmission and distribution service directly to retail customers in Entergy Arkansas service
territory,
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any other entity responsible that provides transmission and distribution service to retail customers in Entergy Arkansas service territory, and
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any successor to any such entity.
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27
Informational Post Issuance Filings
No later than two business days following issuance of the
storm recovery bonds, Entergy Arkansas is required to file with the APSC an issuance report letter describing the final structure and terms of the storm recovery bond issuance. The report will also include the initial storm recovery charges. The
issuance report letter will be provided for informational purposes, and does not affect in any manner validity of the storm recovery bonds or the imposition of the storm recovery charges authorized under the financing order.
In addition, no later than 90 days following the date of
issuance of the storm recovery bonds, Entergy Arkansas is required to file with the APSC a report substantiating and explaining all deviations from the estimated interest rate and costs of issuance estimated by Entergy Arkansas in its financing
order application and testimony. Lastly, within 90 days of the end of each year while the storm recovery bonds are outstanding, Entergy Arkansas will file with the APSC a report detailing its ongoing financing costs and explaining all
deviations from estimates in the financing order. These reports will also be for informational purposes and shall not affect in any manner the validity of the storm recovery bonds or the imposition of the storm recovery charges authorized under the
financing order. If the actual costs of issuance are less than the original estimates, we will apply the excess as a credit to ratepayers in the next true-up adjustment. Any differences between actual ongoing financing costs and estimates will be
addressed in the next true-up adjustment. If the actual costs of issuance are more than the amount included in the bond issuance, Entergy Arkansas may request recovery of the remaining costs through traditional ratemaking mechanisms.
28
DESCRIPTION OF THE STORM RECOVERY PROPERTY
Creation of Storm Recovery Property; Financing
Order
The Act defines storm recovery
property as the rights and interests of an electric utility or successor under a financing order, including the right to impose, bill, collect and receive storm recovery charges, which charges include amounts to be charged to recover storm recovery
costs, established in the financing order. Storm recovery property are only contract rights until the time that it is first transferred to an assignee or pledged in connection with the issuance of storm recovery bonds. The storm recovery bonds will
be secured by storm recovery property, as well as the other collateral described under Security for the Storm Recovery Bonds.
In addition to the right to impose, bill, collect and receive storm recovery charges, the financing order:
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authorizes the transfer of storm recovery property to us and the issuance of storm recovery bonds;
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establishes procedures for periodic true-up adjustments to storm recovery charges in the event of overcollection or undercollection; and
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provides that the financing order is irrevocable and not subject to reduction, impairment, or adjustment by further act of the APSC (except for the
periodic adjustments to the storm recovery charges).
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Tariff; Storm Recovery Charges
The following is a description of the initial tariff filed by Entergy Arkansas with the APSC together with the application for the
financing order creating storm recovery property.
The storm recovery charges will be payable by all existing and future retail customers located within Entergy Arkansas service
territory who consume electricity that is delivered through the transmission or distribution system from Entergy Arkansas and its successors and assignees. Please read The ActEntergy Arkansas and other utilities may securitize financing
costs Storm Recovery Charges Are Nonbypassable. The defined classes of storm recovery charge retail customers are:
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Residential Rate ClassThis service is for single family residences and individual apartments.
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Small General Service Rate ClassThis service is applicable to commercial and industrial customers using less than 100kW (i.e. retail stores
and schools), farms and agricultural water pumping companies, cable television providers, municipal pumping agencies and traffic signal service.
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Large General Service Rate ClassThis service is for commercial and industrial customers that use more than 101kW. Typical customers range
from apartment building operations and grocery stores that use between 101kW to 1000kW to lumber companies and shopping malls that use over 1000kW.
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Lighting Rate ClassThis service is for municipal street lighting and all customers that have EAI installed all night outdoor lighting
service.
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Because of differences
in the tariff rate for each class of retail customers and the provisions of the Act, the storm recovery charges payable by each class of retail customers will differ.
Set forth below are the allocation percentages for the four
storm recovery charge retail customer classes, each of which was adopted in the financing order issued by the APSC.
Storm Recovery Charge Retail Customer Class Allocation Percentages
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|
|
Storm Recovery Charge Retail Customer Class
|
|
Allocation Percentage
|
|
Residential
|
|
50.87
|
%
|
Small General Service
|
|
27.33
|
%
|
Large General Service
|
|
20.83
|
%
|
Lighting
|
|
0.97
|
%
|
29
Although the cost allocation percentages will not change for the life of the storm recovery
bonds, in the event that forecasted sales to any customer class decreases by more than 10% of base period sales, this lost sales impact will be spread among the remaining customer classes. This mechanism prevents the remaining customers
of any class from experiencing excess storm recovery charges due to loss of sales and ensures the recovery of the periodic billing requirement.
All retail electric customers will be billed on either a kilowatt-hour basis or a demand metered basis. Each new retail electric customer
will be assigned to the appropriate customer class.
The initial storm recovery charge rates will be calculated by Entergy Arkansas, as servicer, at the time of issuance of the storm recovery
bonds and will be final and effective upon issuance of the storm recovery bonds without any further action by the APSC. Entergy Arkansas will impose storm recovery charges commencing no earlier than on the first day of the billing cycle of the
revenue month next following the issuance date of the storm recovery bonds. The initial average storm recovery charge for an average retail customer, as well as the first date on which such charges will be imposed will be set forth in the prospectus
supplement.
Billing and Collection
Terms and Conditions
Storm recovery charges
will be assessed by the servicer, for our benefit as owner of the storm recovery property, based on a retail customers actual consumption of electricity or electric demand from time to time. Storm recovery charges will be collected by the
servicer directly from retail customers as part of its normal collection activities. Storm recovery charges will be deposited by the servicer into the collection account under the terms of the indenture and the servicing agreement. The servicer will
deposit in the collection account received payments of storm recovery charges within two business days.
The obligation to pay storm recovery charges is not subject to any right of set-off in connection with the bankruptcy of the seller or any
other entity. Storm recovery charges are nonbypassable in accordance with the provisions set forth in the Act and the financing order. If a retail customer pays only a portion of its bill, such partial payments will be first applied to
any amounts due with respect to customer deposits. Next, the servicer will allocate the partial payment to all electric service charges of the servicer and storm recovery charges pro rata based on the total amount billed, with amounts owed for
storm recovery charges allocated before amounts owed for late charges. Finally, any remaining moneys will be allocated to taxes and charges billed to customers. The portion owed in respect of storm recovery charges may be further allocated as
between different issuances of storm recovery bonds, including amounts owed to other special-purpose subsidiaries of Entergy Arkansas who may in the future issue storm recovery bonds under the Act. Such allocations shall be pro rata based upon
the amount billed with respect to each such issuance.
30
THE SELLER, INITIAL SERVICER AND SPONSOR
General
Entergy Arkansas will be the seller and initial servicer of
the storm recovery property securing the storm recovery bonds, and will be the sponsor of the securitization in which the storm recovery bonds covered by this prospectus are issued.
Entergy Arkansas is a wholly-owned subsidiary of Entergy
Corporation, a Delaware corporation (Entergy). In addition to Entergy Arkansas, the principal operating utility subsidiaries of Entergy are Entergy Gulf States Louisiana, L.L.C., Entergy Louisiana, LLC, Entergy
Mississippi, Inc., Entergy New Orleans, Inc, and Entergy Texas, Inc. Entergy also owns, among other things, all of the common stock of System Energy Resources, Inc., a generating company that owns the Grand Gulf Electric Generating
Station, and Entergy Operations, Inc., a nuclear management services company.
Capacity and energy from Grand Gulf are allocated among Entergy Louisiana, LLC, Entergy Mississippi, Inc., Entergy New Orleans, Inc. and
Entergy Arkansas under a unit power sales agreement. Entergy Arkansas allocated share of Grand Gulfs capacity and energy, together with related costs is 36%. Payments that Entergy Arkansas makes under the unit power sales agreement are
generally recovered through rates set by the Arkansas Public Service Commission and the Tennessee Regulatory Authority, which regulate its electric service, rates and charges. Entergy Arkansas is also subject to regulation by the Federal Energy
Regulatory Commission.
Together with Entergy
Louisiana Properties, LLC, Entergy Mississippi, Inc., and Entergy New Orleans, Inc., Entergy Arkansas owns all of the capital stock of System Fuels, Inc. System Fuels, Inc. is a special purpose company which implements and maintains certain programs
for the purchase, delivery and storage of fuel supplies for Entergy Corporations utility subsidiaries.
As of December 31, 2009, Entergy Arkansas provided electric service to approximately 689,380 retail customers in its service
territory in Arkansas. The retail customer base includes a mix of residential, commercial and diversified industrial retail customers. During the twelve months ended December 31, 2009, Entergy Arkansas delivered approximately 19.9 billion
kilowatt hours of electricity resulting in billed electric revenue of $ 1,698.1 million. Entergy Arkansas also provides retail electric service to a small number of customers in Tennessee who will not be subject to the storm recovery charges.
Entergy Arkansas operates within most of its
service area pursuant to franchise agreements with municipalities. These franchise agreements automatically renew on an annual basis, unless the municipality elects to purchase Entergy Arkansas facilities.
Under Arkansas law a municipality may purchase a
utilitys facilities within its jurisdiction only if approved by a vote of its electorate and if the terms and conditions are approved by the APSC. If the utility and the municipality cannot agree upon just compensation and
damages to be paid to the utility, the APSC will determine the amount to be paid. Arkansas law further provides that if any municipal acquisition will adversely affect the utility, the APSC shall deny the application. We and Entergy
Arkansas are unaware of any acquisition or proposed acquisition by a municipality of an electric utilitys property utilizing this law in recent years.
The Act specifies that storm recovery charges will be collected by an electric utility as well as its successors. In the
servicing agreement, Entergy Arkansas will covenant to assert in an appropriate forum that any municipality that acquires any portion of Entergy Arkansas electric distribution facilities must be treated as a successor to Entergy Arkansas under
the Act and the financing order and that retail customers in such municipalities remain responsible for payment of storm recovery charges.
Where to Find Information About Entergy Arkansas
. Entergy Arkansas files periodic reports with the SEC as required by the Exchange
Act. Reports filed with the SEC are available for inspection without charge at the public reference room maintained by the SEC at 100 F Street, N.E., Washington, DC 20549. Copies of periodic
31
reports and exhibits thereto may be obtained at the above location at prescribed rates. Information as to the operation of the public reference facilities is available by calling the SEC at
1-800-SEC-0330. Information filed with the SEC can also be inspected at the SEC site on the World Wide Web at http://www.sec.gov. You may access a copy of Entergy Arkansas filings at http://www.entergy.com. Except as provided in any related
prospectus supplement, no information contained on that website constitutes part of this prospectus or any prospectus supplement related to the storm recovery bonds.
Entergy Arkansas Customer Base and Electric
Energy Consumption
The following tables show
the electricity billed to retail customers, electric billed revenues and average number of retail customers for each of Entergy Arkansas revenue-reporting customer classes for the five preceding years within its service territory. All data is
for all of Entergy Arkansas retail customers, including those who are not under the jurisdiction of the APSC and will not pay the Storm Recovery Charges. As of December 31, 2009, approximately 21 of EAIs 689,380 customers are not
subject to the jurisdiction of the APSC. There can be no assurances that the retail electricity sales, retail electric revenues and number of retail customers or the composition of any of the foregoing will remain at or near the levels reflected in
the following tables.
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|
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|
|
|
|
|
|
|
|
|
|
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|
Electricity Billed to Retail Customers (As Measured by GWh Sales)
by Customer Class and Percentage
Composition*
|
|
Customer Class
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
Residential
|
|
|
7,653
|
|
36.44
|
%
|
|
|
7,655
|
|
35.89
|
%
|
|
|
7,726
|
|
36.15
|
%
|
|
|
7,678
|
|
36.50
|
%
|
|
|
7,464
|
|
37.46
|
%
|
Commercial
|
|
|
5,730
|
|
27.28
|
%
|
|
|
5,816
|
|
27.26
|
%
|
|
|
5,945
|
|
27.82
|
%
|
|
|
5,875
|
|
27.93
|
%
|
|
|
5,817
|
|
29.19
|
%
|
Industrial
|
|
|
7,334
|
|
34.91
|
%
|
|
|
7,587
|
|
35.57
|
%
|
|
|
7,424
|
|
34.74
|
%
|
|
|
7,212
|
|
34.28
|
%
|
|
|
6,376
|
|
32.00
|
%
|
Government & Municipal
|
|
|
288
|
|
1.37
|
%
|
|
|
273
|
|
1.28
|
%
|
|
|
277
|
|
1.29
|
%
|
|
|
273
|
|
1.30
|
%
|
|
|
269
|
|
1.35
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Retail
|
|
|
21,005
|
|
100.00
|
%
|
|
|
21,332
|
|
100.00
|
%
|
|
|
21,371
|
|
100.00
|
%
|
|
|
21,038
|
|
100.00
|
%
|
|
|
19,926
|
|
100.00
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Electric Billed Revenues by Customer Class and Percentage Composition (Dollars
in thousands)*
|
|
Customer Class
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
Residential
|
|
$
|
620,327
|
|
46.03
|
%
|
|
$
|
705,998
|
|
44.71
|
%
|
|
$
|
689,885
|
|
45.26
|
%
|
|
$
|
755,780
|
|
44.43
|
%
|
|
$
|
768,500
|
|
45.26
|
%
|
Commercial
|
|
$
|
347,641
|
|
25.80
|
%
|
|
$
|
417,914
|
|
26.46
|
%
|
|
$
|
408,561
|
|
26.80
|
%
|
|
$
|
462,599
|
|
27.20
|
%
|
|
$
|
474,543
|
|
27.95
|
%
|
Industrial
|
|
$
|
361,879
|
|
26.85
|
%
|
|
$
|
435,931
|
|
27.60
|
%
|
|
$
|
406,984
|
|
26.70
|
%
|
|
$
|
461,486
|
|
27.13
|
%
|
|
$
|
433,321
|
|
25.52
|
%
|
Government & Municipal
|
|
$
|
17,722
|
|
1.32
|
%
|
|
$
|
19,390
|
|
1.23
|
%
|
|
$
|
18,972
|
|
1.24
|
%
|
|
$
|
21,043
|
|
1.24
|
%
|
|
$
|
21,731
|
|
1.28
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Retail
|
|
$
|
1,347,568
|
|
100.00
|
%
|
|
$
|
1,579,234
|
|
100.00
|
%
|
|
$
|
1,524,401
|
|
100.00
|
%
|
|
$
|
1,700,907
|
|
100.00
|
%
|
|
$
|
1,698,096
|
|
100.00
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Arkansas Service Territory Average Number of Retail Customers and Percentage Composition*
|
|
Customer Class
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
Residential
|
|
|
566,699
|
|
84.22
|
%
|
|
|
573,571
|
|
84.19
|
%
|
|
|
576,884
|
|
84.16
|
%
|
|
|
579,303
|
|
84.08
|
%
|
|
|
580,574
|
|
84.08
|
%
|
Commercial
|
|
|
83,254
|
|
12.37
|
%
|
|
|
84,864
|
|
12.46
|
%
|
|
|
85,948
|
|
12.54
|
%
|
|
|
87,141
|
|
12.65
|
%
|
|
|
87,712
|
|
12.70
|
%
|
Industrial
|
|
|
22,321
|
|
3.32
|
%
|
|
|
22,222
|
|
3.26
|
%
|
|
|
21,989
|
|
3.21
|
%
|
|
|
21,889
|
|
3.18
|
%
|
|
|
21,558
|
|
3.12
|
%
|
Government & Municipal
|
|
|
637
|
|
0.09
|
%
|
|
|
659
|
|
0.10
|
%
|
|
|
681
|
|
0.10
|
%
|
|
|
637
|
|
0.09
|
%
|
|
|
657
|
|
0.10
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Retail
|
|
|
672,910
|
|
100.00
|
%
|
|
|
681,316
|
|
100.00
|
%
|
|
|
685,502
|
|
100.00
|
%
|
|
|
688,969
|
|
100.00
|
%
|
|
|
690,501
|
|
100.00
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*
|
|
Columns may not add due to rounding.
|
Percentage Concentration Within Entergy Arkansas Largest Customers
For the year ended December 31, 2009, the ten largest
electric customers in Entergy Arkansas service territory represented approximately 9% of Entergy Arkansas retail gigawatt-hour sales. All ten customers are industrial class accounts. There are no material concentrations in the
residential and commercial classes.
32
Forecasting Electricity Consumption
Entergy uses econometric models for forecasting residential,
commercial, industrial and governmental and municipal sales for all of its regulated electric utilities, including Entergy Arkansas. The models use ten years of monthly historical sales data when possible, although several models use only
5-8 years because of reliability issues with older data. Entergys largest 150 industrial customers (the Top 150) are forecasted and tracked individually through account managers. Of the Top 150 accounts, 27 are located in
Entergy Arkansas service territory.
Economic driver data used in the econometric models, both historical and forecasted, are obtained from Moodys Economy.com. The data
includes both customized data for Entergy Arkansas service territory, as well as national drivers for a wide variety of economic variables. Temperature data is obtained from the national weather service and converted to cooling and heating
degree days for use in all the models except for those instances (such as for all the industrial class models) where no dependence of sales to weather could be established. Actual data is used for the historical time periods and normal (defined as
15-year average) cooling and heating days are used for the forecasted time periods.
Econometric sales forecasts for Entergy Arkansass residential class are derived from separate usage per customer (UPC)
and customer count models, the outputs of which are multiplied together on a monthly basis to produce estimated total sales volumes. For the other classes, total usage is directly calculated by the models. The key drivers for the UPC models are
generally gross area economic output (similar to national gross domestic product) or real income, while customer count models are typically based on drivers such as population or households. The residential UPC and commercial usage models
additionally incorporate end use variables such as appliance efficiencies and home size to account for the impact of changing end use characteristics through time. These models are generically known as Statistically Adjusted End Use
(SAE) models.
Once per year (typically in
June), Entergy completes a comprehensive five-year sales forecast where the econometric models are completely re-estimated and where each Top 150 account forecast is produced. The output of this exercise is the sales forecast that underlies
Entergys annual five-year business plan. This forecast is typically completed during June as the first step in a multi-stage planning process that determines the hourly demand (gigawatt), generation mix and fuel cost assumptions in the
business plan. In the past, the final sales forecast, although largely based on the econometric model outputs, has been revised by qualitative judgments from management. Starting in the five-year (2007 to 2011) business plan, however, the sales
forecast for Entergy Arkansas service territory in the five-year business plan is based solely on the econometric modeling and large industrial forecasting processes.
33
Annual Forecast Variance For Ultimate Electric Delivery (GWh)*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
Residential
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forecast
|
|
7,381
|
|
|
7,592
|
|
|
7,703
|
|
|
7,877
|
|
|
7,692
|
|
Actual
|
|
7,653
|
|
|
7,655
|
|
|
7,726
|
|
|
7,678
|
|
|
7,464
|
|
Variance (%)
|
|
3.7
|
%
|
|
0.8
|
%
|
|
0.3
|
%
|
|
-2.5
|
%
|
|
-3.0
|
%
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forecast
|
|
5,628
|
|
|
5,768
|
|
|
5,859
|
|
|
6,005
|
|
|
5,968
|
|
Actual
|
|
5,730
|
|
|
5,816
|
|
|
5,945
|
|
|
5,875
|
|
|
5,817
|
|
Variance (%)
|
|
1.8
|
%
|
|
0.8
|
%
|
|
1.5
|
%
|
|
-2.2
|
%
|
|
-2.5
|
%
|
Industrial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forecast
|
|
7,179
|
|
|
7,471
|
|
|
7,540
|
|
|
7,596
|
|
|
7,231
|
|
Actual
|
|
7,334
|
|
|
7,587
|
|
|
7,424
|
|
|
7,212
|
|
|
6,376
|
|
Variance (%)
|
|
2.2
|
%
|
|
1.6
|
%
|
|
-1.5
|
%
|
|
-5.1
|
%
|
|
-11.8
|
%
|
Government
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forecast
|
|
280
|
|
|
292
|
|
|
294
|
|
|
308
|
|
|
282
|
|
Actual
|
|
288
|
|
|
273
|
|
|
277
|
|
|
273
|
|
|
269
|
|
Variance (%)
|
|
2.7
|
%
|
|
-6.6
|
%
|
|
-5.8
|
%
|
|
-11.4
|
%
|
|
-4.7
|
%
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forecast
|
|
20,468
|
|
|
21,123
|
|
|
21,395
|
|
|
21,785
|
|
|
21,174
|
|
Actual
|
|
21,005
|
|
|
21,332
|
|
|
21,371
|
|
|
21,038
|
|
|
19,926
|
|
Variance (%)
|
|
2.6
|
%
|
|
1.0
|
%
|
|
-0.1
|
%
|
|
-3.4
|
%
|
|
-5.9
|
%
|
*
|
|
Percentages may not calculate due to rounding.
|
Credit Policy; Billing Process; Collections Process; Termination of Service
Entergy Arkansas bills its retail customers in its service
territory directly, and its current credit policies, billing process, and termination of service policies are described below. All information below pertains only to Entergy Arkansas service territory.
Credit Policy
Entergy Arkansas is required to provide electric utility
service to applicants within its certificated service area once outstanding debts are cleared and any deposit requirements are met. Using information provided by the Customer Care System (CCS, Entergys legacy customer accounting system),
Entergy Arkansas determines whether Entergy Arkansas has previously provided service to an applicant. Certain accounts are secured with deposits or guarantees as a precautionary measure. The amount of the deposit for residential customers is based
upon the customers previous payment history with Entergy Arkansas. New applicants will be billed twice the states average bill amount for their deposit. If the applicant had prior history with Entergy Arkansas and did not have more than
two delinquencies within a twelve month period, then their deposit will be waived. If the applicant had prior history with Entergy and had more than two delinquencies within a twelve month period, then they will be charged the sum of their two
highest bills at their previous account for their deposit amount.
Entergy Arkansas uses specific criteria for establishing credit. Entergy Arkansas uses a positive identification and customer credit
scoring service from a third-party provider (currently Experian) to determine creditworthiness of its new residential applicants. If a deposit is required to establish credit, residential applicants are billed twice the states average bill
amount. APSC rules require deposits to be returned when the customer has paid bills for service for 12 consecutive residential billings without having any occasions in which a bill was delinquent. APSC rules require Entergy Arkansas to pay simple
interest at a rate determined annually, and, as of January 1, 2010, at a rate of 1.6%, for any cash deposits held by Entergy Arkansas on a customers account.
34
APSC rules require interest to be refunded annually. A residential applicant may also have their deposit requirement satisfied by an existing residential customer in good standing acting as
guarantor for the deposit or portion of deposit. Entergy Arkansas does not accept third party guarantors for commercial accounts.
Entergy Arkansas current business practices require industrial and commercial customers to provide deposits based on the type of
business and square footage of the building.
Cash
deposits are accounted for as an obligation, but are not required to be escrowed, and are available in working capital.
Billing Process
Entergy Arkansas bills its customers on average every 30 days. For the year ended December 31, 2009, Entergy Arkansas in its
service territory mailed out an average of 31,024 bills on each business day to its customers. For accounts with potential billing error exceptions, reports are generated for manual review. This review examines accounts that have abnormally high or
low bills, potential meter-reading errors, possible meter malfunctions and/or unbilled accounts. The APSC requires that the bill provided to customers shall include a payment due date that shall not be less than 21 days after issuance.
Collection, Termination of Service and
Write-Off Policy
In 2009, Entergy
Arkansas received approximately 44% of payments by mail, 25% were walk-in payments, and 10% were electronic payments (EFT funds pushed to Entergy via customers bank on-line, bill consolidators and unauthorized walk-ins), 9% were bank drafts,
6% were made by phone and 6% at Entergys website. Walk-in payments are handled by a third party and payment centers are located in each town in Entergy Arkansas service territory. These numbers are based on the volume of payments and not
the revenue tied to them.
Customers are sent a bill which is due and payable upon receipt and is considered past due if not paid within 21
calendar days from the mail date. If the bill is not paid on the last day to pay indicated on the statement, and the customers payment history makes the past due amount eligible for collection activity, a disconnect notice is mailed on the 4
th
business day after the past due date to ensure that
consideration is given to any payment that may be en route by mail on the last day to pay. The disconnect notice gives the customer an additional 10 calendar days to pay the bill. On the last day to pay indicated on the disconnect notice, a courtesy
call is attempted with a predictive dialer. If the bill is not paid or if the customer has not called for extended payment arrangements, a disconnect order will be generated on the next business day. Once the disconnect order has been generated,
payment in full is required to stop the termination. If the customer is disconnected, payment in full is required. In addition, the customer may be subject to an additional deposit and/or a collection or reconnection fee. For non-residential
customers, additional deposits are billed per APSC rule based on the customer reaching the disconnect register two or more times within the most recent twelve months.
Termination of service is subject to APSC rules that forbid
termination during certain weather conditions, such as freezing temperatures or heat advisory conditions. In addition, the APSC has rules forbidding termination of service to critical care customers.
Entergy Arkansas provides several payment options to help
customers manage their electric usage and payments. Entergy Arkansas customer service representatives are available to assist customers with payment arrangements Monday through Friday from 7 a.m. until 7 p.m. central time. An Interactive
Voice Response system (IVR) is available 24 hours a day, 365 days a year to assist customers with payment arrangements. Most customers can receive an extension on their scheduled disconnect date through the IVR or by talking with a
customer service representative. Extensions are denied in some cases based on the customer having either existing payment arrangements or having a history of prior broken agreements. Programs such as Pick-A-Date,
35
which allows the customer to choose a preferred due date and Levelized Billing Programs, which allow customers to pay an average bill each month while spreading the difference over the remaining
months, are available to most residential customers. Automated draw draft and internet billing and payments are also available.
Unpaid final bills are written off after 120 days. Entergy Arkansas does mail a final bill to all customers. If not paid in
45 days, an in-house collection letter is mailed. A second letter is mailed approximately 15 days later. If not paid, a third letter is mailed by a third-party collector approximately 75 days from the time that the final bill is
mailed. Once the account is written off, it is turned over to a third-party collection agency on a contingency basis.
Write-off and Delinquency Experience
The following table shows gross write-offs for electricity
and gross write-offs as a percentage of total electric billed revenue for the past five years for Entergy Arkansas service territory.
Gross Write-Offs as a Percentage of Revenues*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For Year Ended December 31,
|
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
Billed Electric Revenues ($000)
|
|
$
|
1,347,568
|
|
|
$
|
1,579,234
|
|
|
$
|
1,524,401
|
|
|
$
|
1,700,907
|
|
|
$
|
1,698,096
|
|
Gross Write-Offs ($000)
|
|
$
|
15,599
|
|
|
$
|
16,810
|
|
|
$
|
43,796
|
|
|
$
|
13,064
|
|
|
$
|
19,510
|
|
Percentage of Billed Revenue
|
|
|
1.16
|
%
|
|
|
1.06
|
%
|
|
|
2.87
|
%
|
|
|
0.77
|
%
|
|
|
1.15
|
%
|
*
|
|
Numbers not exact due to rounding.
|
The increase in 2007 in gross write-offs was the result of a customer information system issue in January and February of that year. The
gross charge-offs were overstated and were offset by reinstatements for those two months.
The following table shows, for its service territory, total Entergy Arkansas net write-offs for electricity and total net write-offs as a
percentage of total electric billed revenue for the past five years. Net write-offs include amounts recovered by Entergy Arkansas from deposits, bankruptcy proceedings and payments received after an account has been either written-off by Entergy
Arkansas or transferred to one of its external collection agencies.
Net Write-Offs as a Percentage of Revenues*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For Year Ended December 31,
|
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
Billed Electric Revenues ($000)
|
|
$
|
1,347,568
|
|
|
$
|
1,579,234
|
|
|
$
|
1,524,401
|
|
|
$
|
1,700,907
|
|
|
$
|
1,698,096
|
|
Net Write-Offs ($000)
|
|
$
|
4,150
|
|
|
$
|
9,108
|
|
|
$
|
8,807
|
|
|
$
|
6,735
|
|
|
$
|
11,605
|
|
Percentage of Billed Revenue
|
|
|
0.31
|
%
|
|
|
0.58
|
%
|
|
|
0.58
|
%
|
|
|
0.40
|
%
|
|
|
0.68
|
%
|
*
|
|
Numbers not exact due to rounding.
|
36
Delinquencies
The following table sets forth information relating to the
delinquency experience of Entergy Arkansas for residential, commercial, industrial and governmental customers on December 31 of each of the five preceding years:
Customer Delinquency Data*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dec.
2005
|
|
|
Dec.
2006
|
|
|
Dec.
2007
|
|
|
Dec.
2008
|
|
|
Dec.
2009
|
|
Residential
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent of Billed Revenue Collected Within:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31-60 days
|
|
12.53
|
%
|
|
14.06
|
%
|
|
14.61
|
%
|
|
13.71
|
%
|
|
12.90
|
%
|
61-90 days
|
|
1.98
|
%
|
|
1.98
|
%
|
|
2.11
|
%
|
|
1.95
|
%
|
|
1.69
|
%
|
91 days or more
|
|
0.60
|
%
|
|
0.47
|
%
|
|
0.40
|
%
|
|
0.35
|
%
|
|
0.36
|
%
|
|
|
|
|
|
|
Commercial, Industrial, Governmental & Residential
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent of Billed Revenue Collected Within:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31-60 days
|
|
7.81
|
%
|
|
7.74
|
%
|
|
8.02
|
%
|
|
7.37
|
%
|
|
7.07
|
%
|
61-90 days
|
|
1.21
|
%
|
|
1.00
|
%
|
|
1.11
|
%
|
|
0.91
|
%
|
|
0.92
|
%
|
91 days or more
|
|
0.34
|
%
|
|
0.26
|
%
|
|
0.28
|
%
|
|
0.22
|
%
|
|
0.21
|
%
|
*
|
|
Data shows statistics for combined gas and electric revenues for open accounts for each year and is calculated based upon amounts collected as a percentage of the
years billed revenue.
|
Entergy
Arkansas does not believe that the delinquency experience with respect to storm recovery charge collections will differ substantially from the approximate rates indicated above.
ENTERGY ARKANSAS RESTORATION
FUNDING, LLC, THE ISSUING ENTITY
We are a
special purpose limited liability company formed under the Delaware Limited Liability Company Act pursuant to a limited liability company agreement executed by our sole member or owner, Entergy Arkansas, and the filing of a certificate of formation
with the Secretary of State of the State of Delaware. Our limited liability company agreement restricts us from engaging in activities other than those described in this section. We do not have any employees, but we will pay our member for
administrative services in accordance with our limited liability company agreement. We have summarized selected provisions of our limited liability company agreement below, a copy of which has been filed as an exhibit to the registration statement
of which this prospectus is a part. On the date of issuance of the storm recovery bonds, our capital will be equal to 0.5% of the principal amount of the storm recovery bonds issued or such other amount as may allow us to achieve the desired
security rating and treat the storm recovery bonds as debt under applicable IRS regulations. Our capitalization after giving effect to the issuance of the storm recovery bonds will be set forth in the prospectus supplement.
As of the date of this prospectus, we have not carried on any
business activities and have no operating history. We are not an agency or instrumentality of the State of Arkansas.
Our assets will consist of:
|
|
|
the storm recovery property,
|
|
|
|
our rights under the sale agreement (and under any bills of sale delivered thereunder), the servicing agreement, the administration agreement, and the
other basic documents,
|
|
|
|
collections of storm recovery charges that are allocated to us and the trust accounts held by the trustee, and
|
|
|
|
any money distributed to us by the trustee from the collection account in accordance with the indenture.
|
37
Restricted Purpose
We have been created for the sole purpose of:
|
|
|
purchasing and owning the storm recovery property and the other collateral;
|
|
|
|
registering and issuing from time to time storm recovery bonds, which may be comprised of one or more tranches;
|
|
|
|
making payment on the storm recovery bonds;
|
|
|
|
distributing amounts released to us;
|
|
|
|
pledging our interest in the storm recovery property and other collateral to the trustee under the indenture in order to secure the repayment of storm
recovery bonds and certain qualified expenses; and
|
|
|
|
performing other activities that are necessary, suitable or convenient to accomplish these purposes.
|
Our limited liability company agreement does not permit us to
engage in any activities not directly related to these purposes, including issuing securities (other than the storm recovery bonds), borrowing money or making loans to other persons. We may not issue any other storm recovery bonds other than the
storm recovery bonds offered by this prospectus. The list of permitted activities set forth in our limited liability company agreement may not be altered, amended or repealed without the affirmative vote of a majority of our managers, which vote
must include the affirmative vote of all of our independent manager(s).
Our Relationship with Entergy Arkansas
On the issue date of the storm recovery bonds, Entergy Arkansas will sell the storm recovery property to us pursuant to the
sale agreement between us and Entergy Arkansas. Entergy Arkansas will service the storm recovery property pursuant to the servicing agreement between us and Entergy Arkansas. Please read The Sale Agreement and The Servicing
Agreement.
Our Management
Pursuant to our limited liability company
agreement, our business will be managed by five managers appointed from time to time by Entergy Arkansas. We refer to Entergy Arkansas or any successor as our
owner
or
owners
. Following the initial issuance of storm recovery bonds, we
will have at least one independent manager who, among other things, is not and has not been for at least five years from the date of their appointment:
|
|
|
a direct or indirect legal or beneficial owner of us, our owner, any of our respective affiliates or any of our owners affiliates,
|
|
|
|
a relative, supplier, employee, officer, director, manager, contractor or material creditor of us, our owner or any of our affiliates or any of our
owners affiliates, or
|
|
|
|
a person who controls (whether directly, indirectly or otherwise) our owner or its affiliates or any creditor, employee, officer, director, manager or
material supplier or contractor of our owner or its affiliates; provided, that the indirect or beneficial ownership of stock of our owner or its affiliates through a mutual fund or similar diversified investment vehicle with respect to which the
owner does not have discretion or control over the investments held by such diversified investment vehicle shall not preclude such owner from being an independent manager.
|
The remaining managers will be employees or officers of
Entergy Arkansas, its affiliates or any new owner. The managers will devote the time necessary to conduct our affairs.
38
Entergy Arkansas, as our sole member, will appoint the independent manager(s) prior to the
issuance of the storm recovery bonds. None of our managers or officers has been involved in any legal proceedings which are specified in Item 401(f) of the SECs Regulation S-K.
Manager Fees and Limitation on Liabilities
We have not paid any compensation to any manager
since we were formed. We will not compensate our managers, other than the independent manager(s), for their services on our behalf. We will pay the independent manager(s) annual fees from our revenues and will reimburse them for their reasonable
expenses. These expenses include the reasonable compensation, expenses and disbursements of the agents, representatives, experts and counsel that the independent manager(s) may employ in connection with the exercise and performance of their rights
and duties under our limited liability company agreement, the indenture, the sale agreement and the servicing agreement. Our limited liability company agreement provides that to the extent permitted by law, the managers will not be personally liable
for any of our debts, obligations or liabilities. Our limited liability company agreement further provides that, except as described below, to the fullest extent permitted by law, we will indemnify the managers against any liability incurred in
connection with their services as managers for us if they acted in good faith and in a manner which they reasonably believed to be in or not opposed to our best interests. With respect to a criminal action, the managers will be indemnified unless
they had reasonable cause to believe their conduct was unlawful. We will not indemnify the manager for any judgment, penalty, fine or other expense directly caused by their fraud, gross negligence or willful misconduct. In addition, unless ordered
by a court, we will not indemnify the managers if a final adjudication establishes that their acts or omissions involved intentional misconduct, fraud or a knowing violation of the law and were material to the cause of action. We will pay any
indemnification amounts owed to the managers out of funds in the collection account, subject to the priority of payments described in Security for the Storm Recovery BondsHow Funds in the Collection Account Will Be Allocated.
We Are a Separate and Distinct Legal
Entity from Entergy Arkansas
Under our
limited liability company agreement, we may not file a voluntary petition for relief under the Bankruptcy Code, without the affirmative vote of our member and the affirmative vote of all of our managers, including each independent manager(s). Our
limited liability company agreement requires us, except for financial reporting purposes and for U.S. federal income tax purposes, and, to the extent consistent with applicable state law, state income and franchise tax purposes, to maintain our
existence separate from Entergy Arkansas including:
|
|
|
taking all reasonable steps to continue our identity as a separate legal entity;
|
|
|
|
making it apparent to third persons that we are an entity with assets and liabilities distinct from those of Entergy Arkansas, other affiliates of
Entergy Arkansas, the managers or any other person; and
|
|
|
|
making it apparent to third persons that, except for federal and certain other tax purposes, we are not a division of Entergy Arkansas or any of its
affiliated entities or any other person.
|
Administration Agreement
Entergy Arkansas will, pursuant to an administration
agreement between Entergy Arkansas and us, provide administrative services to us, including services relating to the preparation of financial statements, required filings with the SEC, any tax returns we might be required to file under applicable
law, qualifications to do business, and minutes of our managers meetings. We will pay Entergy Arkansas a fixed fee of $100,000 per annum, payable in installments of $50,000 on each payment date for performing these services, plus we will
reimburse Entergy Arkansas for all costs and expenses for services performed by unaffiliated third parties and actually incurred by Entergy Arkansas in performing such services described above.
39
USE OF PROCEEDS
We will use the proceeds of the issuance of the storm
recovery bonds to pay the expenses of the issuance and sale of the storm recovery bonds and to purchase storm recovery property from Entergy Arkansas. In accordance with the financing order, Entergy Arkansas will use the proceeds it receives from
the sale of the storm recovery property for the purpose of reducing the amount of recoverable storm recovery costs, as determined by the APSC.
40
DESCRIPTION OF THE STORM RECOVERY BONDS
General
We will issue the storm recovery bonds pursuant to the terms
of an indenture between us and the trustee specified in the prospectus supplement. The particular terms of the storm recovery bonds will be established in a supplement to the indenture referred to herein as a
series supplement
and the
material terms will be described in the prospectus supplement. Although we have summarized below selected provisions of the indenture and the storm recovery bonds, this summary does not purport to be complete and is subject to the terms and
provisions of the indenture and related supplements, forms of which are filed as exhibits to the registration statement of which this prospectus forms a part. Please read Where You Can Find More Information.
We may issue the storm recovery bonds in the future in one or
more tranches. Tranches of storm recovery bonds may differ as to the interest rate, maturity and the timing, sequential order and amount of payments of principal or interest, or both.
The prospectus supplement will describe the specific terms of
the storm recovery bonds (and the tranches (if any)). All storm recovery bonds will be identical in all respects except for the denominations, unless there is more than one tranche, in which case all storm recovery bonds of the same tranche will be
identical in all respects except for the denominations.
All storm recovery bonds that we issue under the indenture will be payable solely from, and secured solely by, a pledge of and lien on the
storm recovery property and the other collateral as provided in the indenture. Please read Security for the Storm Recovery BondsPledge of Collateral.
The prospectus supplement will describe the following terms of the storm recovery bonds and, if applicable, the tranches of
the storm recovery bonds:
|
|
|
the number of tranches, if any,
|
|
|
|
the principal amount of the bonds and, if applicable, the tranches,
|
|
|
|
the storm recovery charges,
|
|
|
|
the annual rate at which interest accrues or the method or methods of determining such annual rate and, if applicable, the tranches,
|
|
|
|
the scheduled final payment date and the final maturity date of the storm recovery bonds and, if applicable, the tranches,
|
|
|
|
the authorized denominations,
|
|
|
|
the expected sinking fund schedule for principal and, if applicable, the tranches,
|
|
|
|
any other material terms of the tranches that are not inconsistent with the provisions of the indenture and that will not result in any rating agency
reducing or withdrawing its rating of any outstanding tranche of storm recovery bonds, and
|
|
|
|
the identity of the trustee.
|
The storm recovery bonds are not a debt, liability or other obligation of the State of Arkansas, the APSC or of any political subdivision,
governmental agency, authority or instrumentality of the State or Arkansas and do not represent an interest in or legal obligation of Entergy Arkansas, Entergy or any of their affiliates, other than us. Neither Entergy Arkansas, Entergy nor any of
their affiliates will guarantee or insure the storm recovery bonds. Financing orders authorizing the issuance of the storm recovery bonds do not constitute a pledge of the
41
full faith and credit of the State of Arkansas or of any of its political subdivisions. The issuance of the storm recovery bonds under the Act will not directly, indirectly or contingently
obligate the State of Arkansas or any of its political subdivisions to levy or to pledge any form of taxation for the storm recovery bonds or, except in their capacity as retail electric customers, to make any appropriation for their payment.
Interest and Principal on the Storm
Recovery Bonds
Interest will accrue on the
principal balance of a tranche of storm recovery bonds at the interest rate specified in or determined in the manner specified in the prospectus supplement. Interest will be payable on each payment date, commencing on the date specified in the
prospectus supplement. Interest payments will be made from collections of storm recovery charges, including amounts available in the excess funds subaccount and, if necessary, the amounts available in the capital subaccount. Please read
Security for the Storm Recovery BondsHow Funds in the Collection Account Will Be Allocated.
Principal of the storm recovery bonds of each tranche will be payable in the amounts and on the payment dates specified in the prospectus
supplement, but only to the extent that amounts in the applicable collection account are available, and subject to the other limitations described below, under Security for the Storm Recovery BondsHow Funds in the Collection Account Will
Be Allocated. Accordingly, principal of the storm recovery bonds may be paid later, but generally not sooner, than reflected in the expected sinking fund schedule, except in the case of an acceleration. The prospectus supplement will set forth
the expected sinking fund schedule and expected amortization schedule for the storm recovery bonds and, if applicable, the tranches. The expected sinking fund schedule will be established in a manner required by the financing order. If principal of
any tranche is not paid in full on the final maturity date for such tranche, an event or default will occur. On any payment date, unless an event of default has occurred and is continuing and the storm recovery bonds have been declared due and
payable, the trustee will make principal payments on the storm recovery bonds only until the outstanding principal balances of those storm recovery bonds have been reduced to the principal balances specified in the applicable expected amortization
schedule for that payment date. The trustee will retain in the excess funds subaccount for payment on later payment dates any collections of storm recovery charges in excess of amounts payable as:
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fees and expenses of the servicer, the independent manager(s) and the trustee (including the indemnity amounts and the servicing fee),
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payments of interest on and principal of the storm recovery bonds,
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investment earnings on amounts in the capital subaccount released to us, and
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allocations to the capital subaccount (all as described under Security for the Storm Recovery BondsHow Funds in the Collection Account Will
Be Allocated).
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If the
trustee receives insufficient collections of storm recovery charges for any payment date, and amounts in the collection account (and the applicable subaccounts of the collection account) are not sufficient to make up the shortfall, principal of any
tranche of storm recovery bonds may be payable later than expected, as described in this prospectus. Please read Risk FactorsOther Risks Associated with an Investment in the Storm Recovery Bonds. The failure to make a scheduled
payment of principal on the storm recovery bonds because there are not sufficient funds in the collection account does not constitute a default or an event of default under the indenture, except for the failure to pay in full the unpaid balance of
any tranche upon the final maturity date for such tranche. If an event of default (other than a breach by the State of Arkansas of its pledge) has occurred and is continuing, then the trustee or the holders of not less than a majority in principal
amount of the storm recovery bonds then outstanding may declare the storm recovery bonds to be immediately due and payable, in which event the entire unpaid principal amount of the storm recovery bonds will become due and payable. Please read
Events of Default; Rights Upon Event of Default.
Unless the context requires otherwise, all references in this prospectus to principal of the storm recovery bonds include any premium that
might be payable if storm recovery bonds are redeemed, as described in the prospectus supplement.
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Payments on the Storm Recovery Bonds
The trustee will pay on each payment date to the holders of
each tranche of storm recovery bonds, to the extent of available funds in the applicable collection account, all payments of principal and interest then due. The trustee will make each payment other than the final payment with respect to any storm
recovery bonds to the holders of record of the storm recovery bonds of the applicable tranche on the record date for that payment date. The trustee will make the final payment for each tranche of storm recovery bonds, however, only upon presentation
and surrender of the storm recovery bonds of that tranche at the office or agency of the trustee specified in the notice given by the trustee of the final payment. The trustee will mail notice of the final payment to the related bondholders no later
than five days prior to the final payment date, specifying the date set for the final payment and the amount of the payment.
The failure to pay accrued interest on any payment date (even if the failure is caused by a shortfall in storm recovery charges received)
will result in an event of default for the storm recovery bonds unless such failure is cured within five business days. Please read Events of Default; Rights Upon Event of Default. Any interest not paid within such five business
day period (plus interest on the defaulted interest at the applicable interest rate to the extent lawful) will be payable to the bondholders on a special record date. The special record date will be at least fifteen business days prior to the date
on which the trustee is to make a special payment (a
special payment date
). We will fix any special record date and special payment date. At least 10 days before any special record date, the trustee will mail to each affected bondholder
a notice that states the special record date, the special payment date and the amount of defaulted interest (plus interest on the defaulted interest) to be paid.
At the time, if any, we issue the storm recovery bonds in the
form of definitive bonds and not to DTC or its nominee, the trustee will make payments with respect to that tranche on a payment date or a special payment date by check mailed to each holder of a definitive bond of the tranche of record on the
applicable record date at its address appearing on the register maintained with respect to the storm recovery bonds. Upon application by a holder of any tranche of storm recovery bonds in the principal amount of $10,000,000 or more to the trustee
not later than the applicable record date, the trustee will make payments by wire transfer to an account maintained by the payee in New York, New York.
If any special payment date or other date specified for any payments to bondholders is not a business day, the trustee will make payments
scheduled to be made on that special payment date or other date on the next succeeding business day and no interest will accrue upon the payment during the intervening period.
Registration and Transfer of the Storm Recovery
Bonds
If specified in the prospectus
supplement, we may issue one or more tranches of storm recovery bonds in definitive form, which will be transferable and exchangeable at the office of the registrar identified in the prospectus supplement. Generally, there will be no service charge
for any registration or transfer of the storm recovery bonds, but the trustee may require the owner to pay a sum sufficient to cover any tax or other governmental charge.
We will issue each tranche of storm recovery bonds in the minimum initial denominations set forth in the prospectus
supplement.
The trustee will make payments of
interest and principal on each payment date to the bondholders in whose names the storm recovery bonds were registered on the record date.
Storm Recovery Bonds Will Be Issued in Book-Entry Form
Unless we specify otherwise in the prospectus supplement,
the storm recovery bonds will be available to investors only in the form of book-entry storm recovery bonds. You may hold your bonds through DTC in the United States or through Clearstream Banking, société anonyme, referred to herein
as Clearstream, or Euroclear
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Bank S.A./N.V., referred to herein as Euroclear, in Europe, or in any other manner we describe in the prospectus supplement. You may hold your bonds directly with one of these systems if you are
a participant in the system or indirectly through organizations that are participants.
The Role of DTC, Clearstream and Euroclear
Cede & Co., as nominee for DTC, will hold the global bond or bonds representing the storm recovery bonds. Clearstream
and Euroclear will hold omnibus positions on behalf of the Clearstream customers and Euroclear participants, respectively, through customers securities accounts in Clearstreams and Euroclears names on the books of their respective
depositaries. These depositaries will, in turn, hold these positions in customers securities accounts in the depositaries names on the books of DTC.
The Function of DTC
DTC, the worlds largest securities depository, is a limited-purpose trust company organized under the New York Banking Law, a
banking organization within the meaning of the New York Banking Law, a member of the Federal Reserve System, a clearing corporation within the meaning of the New York Uniform Commercial Code, and a clearing agency
registered pursuant to the provisions of Section 17A of the Securities Exchange Act of 1934. DTC holds and provides asset servicing for over 3.5 million issues of U.S. and non-U.S. equity issues, corporate and municipal debt
issues, and money market instruments (from over 100 countries) that DTCs participants (Direct Participants) deposit with DTC. DTC also facilitates the post-trade settlement among Direct Participants of sales and other securities
transactions in deposited securities, through electronic computerized book-entry transfers and pledges between Direct Participants accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include
both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation
(DTCC). DTCC is the holding company for DTC, National Securities Clearing Corporation and Fixed Income Clearing Corporation, all of which are registered clearing agencies. DTCC is owned by the users of its regulated subsidiaries. Access
to the DTC system is also available to others such as both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct
Participant, either directly or indirectly (Indirect Participants). The DTC Rules applicable to its Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at www.dtcc.com and
www.dtc.org.
The Function of Clearstream
Clearstream holds securities for its
customers and facilitates the clearance and settlement of securities transactions between Clearstream customers through electronic book-entry changes in accounts of Clearstream customers, thereby eliminating the need for physical movement of
securities. Transactions may be settled by Clearstream in any of various currencies, including United States dollars. Clearstream provides to its customers, among other things, services for safekeeping, administration, clearance and settlement of
internationally traded securities and securities lending and borrowing. Clearstream also deals with domestic securities markets in various countries through established depositary and custodial relationships. Clearstream is registered as a bank in
Luxembourg and therefore is subject to regulation by the Luxembourg
Commission de Surveillance du Secteur Financier
, which supervises Luxembourg banks. Clearstreams customers are world-wide financial institutions including underwriters,
securities brokers and dealers, banks, trust companies and clearing corporations, among others, and may include the underwriters of the storm recovery bonds. Clearstreams United States customers are limited to securities brokers and dealers
and banks. Clearstream has customers located in various countries. Indirect access to Clearstream is also available to other institutions that clear through or maintain a custodial relationship with an account holder of Clearstream. Clearstream has
established an electronic bridge with Euroclear to facilitate settlement of trades between Clearstream and Euroclear.
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The Function of Euroclear
The Euroclear System was created in 1968 in Brussels.
Euroclear holds securities and book-entry interests in securities for Euroclear participants and facilitates the clearance and settlement of securities transactions between Euroclear participants, and between Euroclear participants and participants
of certain other securities intermediaries through simultaneous electronic book-entry delivery against payment, thereby eliminating the need for physical movement of securities and any risk from lack of simultaneous transfers of securities and cash.
Such transactions may be settled in any of various currencies, including United States dollars. The Euroclear System includes various other services, including, among other things, safekeeping, administration, clearance and settlement, securities
lending and borrowing and interfaces with domestic markets in several countries generally similar to the arrangements for cross-market transfers with DTC described below. The Euroclear System is operated by Euroclear Bank SA/NV. Euroclear
participants include central banks and other banks, securities brokers and dealers and other professional financial intermediaries and may include the underwriters of the storm recovery bonds. Indirect access to the Euroclear System is also
available to other firms that clear through or maintain a custodial relationship with a Euroclear participant, either directly or indirectly.
Terms and Conditions of Euroclear
Securities clearance accounts and cash accounts with Euroclear are governed by the Terms and Conditions Governing Use of Euroclear and the
related Operating Procedures of the Euroclear System, and applicable Belgian law (collectively, the Terms and Conditions). These Terms and Conditions govern transfers of securities and cash within the Euroclear System, withdrawals of
securities and cash from the Euroclear System and receipts of payments with respect to securities in the Euroclear System. All securities in Euroclear are held on a fungible basis without attribution of specific securities to specific securities
clearance accounts. Euroclear acts under the Terms and Conditions only on behalf of Euroclear participants and has no record of or relationship with persons holding through Euroclear participants.
The Rules for Transfers Among DTC, Clearstream or
Euroclear Participants
Transfers between
DTC participants will occur in accordance with DTC rules. Transfers between Clearstream customers or Euroclear participants will occur in the ordinary way in accordance with their applicable rules and operating procedures and will be settled using
procedures applicable to conventional securities held in registered form.
Cross-market transfers between persons holding directly or indirectly through DTC, on the one hand, and directly or indirectly through
Clearstream customers or Euroclear participants, on the other, will be effected through DTC in accordance with DTC rules on behalf of the relevant European international clearing system by its depositary; however, those cross-market transactions
will require delivery of instructions to the relevant European international clearing system by the counterparty in that system in accordance with its rules and procedures and within its established deadlines, which will be based on European time.
The relevant European international clearing system will, if the transaction meets its settlement requirements, deliver instructions to its depositary to take action to effect final settlement on its behalf by delivering or receiving storm recovery
bonds in DTC and making or receiving payment in accordance with normal procedures for same-day funds settlement applicable to DTC. Clearstream customers and Euroclear participants may not deliver instructions directly to Clearstreams and
Euroclears depositaries.
Because of
time-zone differences, credits of securities in Clearstream or Euroclear as a result of a transaction with a participant will be made during the subsequent securities settlement processing, dated the business day following the DTC settlement date,
and those credits or any transactions in those securities settled during that processing will be reported to the relevant Clearstream customer or Euroclear participant on that business day. Cash received in Clearstream or Euroclear as a result of
sales of securities by or through a Clearstream customer or a Euroclear participant to a DTC participant will be received with value on the DTC settlement date but will be available in the relevant Clearstream or Euroclear cash account only as of
the business day following settlement in DTC.
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DTC Will Be the Holder of the Storm Recovery Bonds
Storm recovery bondholders that are not participants or
indirect participants but desire to purchase, sell or otherwise transfer ownership of, or other interest in, storm recovery bonds may do so only through participants and indirect participants. In addition, storm recovery bondholders will receive all
distributions of principal of and interest on the storm recovery bonds from the trustee through the participants, who in turn will receive them from DTC. Under a book-entry format, storm recovery bondholders may experience some delay in their
receipt of payments because payments will be forwarded by the trustee to Cede & Co., as nominee for DTC. DTC will forward those payments to its participants, who thereafter will forward them to indirect participants or storm recovery
bondholders. It is anticipated that the only bondholder will be Cede & Co., as nominee of DTC. The trustee will not recognize storm recovery bondholders as bondholders, as that term is used in the indenture, and storm recovery
bondholders will be permitted to exercise the rights of bondholders only indirectly through the participants, who in turn will exercise the rights of storm recovery bondholders through DTC.
Under the rules, regulations and procedures creating and
affecting DTC and its operations, DTC is required to make book-entry transfers among participants on whose behalf it acts with respect to the storm recovery bonds and is required to receive and transmit distributions of principal and interest on the
storm recovery bonds. Participants and indirect participants with whom storm recovery bondholders have accounts with respect to the storm recovery bonds similarly are required to make book-entry transfers and receive and transmit those payments on
behalf of their respective storm recovery bondholders. Accordingly, although storm recovery bondholders will not possess storm recovery bonds, storm recovery bondholders will receive payments and will be able to transfer their interests.
Because DTC can act only on behalf of participants, who in
turn act on behalf of indirect participants and certain banks, the ability of a storm recovery bondholder to pledge storm recovery bonds to persons or entities that do not participate in the DTC system, or otherwise take actions in respect of those
bonds, may be limited due to the lack of a physical certificate for those storm recovery bonds.
DTC has advised us that it will take any action permitted to be taken by a storm recovery bondholder under the indenture only at the
direction of one or more participants to whose account with DTC the storm recovery bonds are credited. Additionally, DTC has advised us that it will take those actions with respect to specified percentages of the collateral amount only at the
direction of and on behalf of participants whose holdings include interests that satisfy those specified percentages. DTC may take conflicting actions with respect to other interests to the extent that those actions are taken on behalf of
participants whose holdings include those interests.
How Storm Recovery Bond Payments Will Be Credited by Clearstream and Euroclear
Distributions with respect to storm recovery bonds held
through Clearstream or Euroclear will be credited to the cash accounts of Clearstream customers or Euroclear participants in accordance with the applicable systems rules and operating procedures, to the extent received by its depositary. Those
distributions will be subject to tax reporting in accordance with relevant United States tax laws and regulations. Please read Material U.S. Federal Income Tax Consequences in this prospectus. Clearstream or the Euroclear operator,
as the case may be, will take any other action permitted to be taken by a storm recovery bondholder under the indenture on behalf of a Clearstream customer or Euroclear participant only in accordance with its applicable rules and operating
procedures and subject to its depositarys ability to effect those actions on its behalf through DTC.
Although DTC, Clearstream and Euroclear have agreed to the foregoing procedures in order to facilitate transfers of the storm recovery
bonds among participants of DTC, Clearstream and Euroclear, they are under no obligation to perform or continue to perform those procedures, and those procedures may be discontinued at any time.
Definitive Storm Recovery Bonds
We will issue storm recovery bonds in registered,
certificated form to bondholders, or their nominees, rather than to DTC, only under the circumstances provided in the indenture, which will include: (1) DTC or us advising
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the trustee in writing that DTC is no longer willing or able to properly discharge its responsibilities as nominee and depositary with respect to the book-entry bonds and that we are unable to
locate a qualified successor, (2) our electing to terminate the book-entry system through DTC, with written notice to the trustee, or (3) after the occurrence of an event of default under the indenture, holders of storm recovery bonds
representing not less than a majority of the aggregate outstanding principal amount of the storm recovery bonds maintained as book-entry bonds advising us, the trustee, and DTC in writing that the continuation of a book-entry system through DTC (or
a successor) is no longer in the best interests of those bondholders. Upon issuance of definitive bonds, the storm recovery bonds evidenced by such definitive bonds will be transferable directly (and not exclusively on a book-entry basis) and
registered holders will deal directly with the trustee with respect to transfers, notices and payments.
Upon surrender by DTC of the definitive securities representing the storm recovery bonds and instructions for registration, the trustee
will issue the storm recovery bonds in the form of definitive bonds, and thereafter the trustee will recognize the registered holders of the definitive bonds as bondholders under the indenture.
The trustee will make payment of principal of and interest on
the storm recovery bonds directly to bondholders in accordance with the procedures set forth herein and in the indenture and the prospectus supplement. The trustee will make interest payments and principal payments to bondholders in whose names the
definitive bonds were registered at the close of business on the related record date. The trustee will make payments by check mailed to the address of the bondholder as it appears on the register maintained by the trustee or in such other manner as
may be provided in the series supplement, except that certain payments will be made by wire transfer as described in the indenture. The trustee will make the final payment on any storm recovery bond (whether definitive bonds or notes registered in
the name of Cede & Co.), however, only upon presentation and surrender of the bond on the final payment date at the office or agency that is specified in the notice of final payment to bondholders. The trustee will provide the notice to
registered bondholders not later than the fifth day prior to the final payment date.
Definitive bonds will be transferable and exchangeable at the offices of the transfer agent and registrar, which initially will be the
trustee. There will be no service charge for any registration of transfer or exchange, but the transfer agent and registrar may require payment of a sum sufficient to cover any tax or other governmental charge imposed in connection therewith.
Optional Redemption
The indenture does not permit an optional redemption of
storm recovery bonds under any circumstances.
Allocations as Between Storm Recovery Bond Issuances
Although each issuance of storm recovery bonds under the Act
will have its own storm recovery property, storm recovery charges relating to each issuance will be collected through single bills to individual retail customers that include all charges related to the purchase of electricity, without separately
itemizing the storm recovery charge component of the bill or the storm recovery charge components applicable to separate issuances. In the event a customer does not pay in full all amounts owed under any bill including storm recovery charges,
Entergy Arkansas is required to allocate any resulting shortfalls in storm recovery charges ratably based on the amounts of storm recovery charges owing in respect of the bonds, amounts owing to us and amounts owing to any other subsequently created
affiliate of Entergy Arkansas which may issue storm recovery bonds. Please read The Servicing AgreementRemittances to Collection Account.
Access of Bondholders
Upon written request of any bondholder or group of bondholders of all outstanding storm recovery bonds evidencing not less than 10 percent
of the aggregate outstanding principal amount of the storm recovery bonds, the trustee will afford the bondholder or bondholders making such request a copy of a current list of bondholders, for purposes of communicating with other bondholders with
respect to their rights under the indenture.
The
indenture does not provide for any annual or other meetings of bondholders.
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Reports to Bondholders
On or prior to each payment date, special payment date or
any other date specified in the indenture for payments with respect to the storm recovery bonds, the trustee will deliver, to the APSC and bondholders, a statement prepared by the servicer with respect to the payment to be made on the payment date,
special payment date or other date, as the case may be, setting forth the following information:
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the amount of the payment to bondholders allocable to principal and interest,
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the aggregate outstanding principal balance of the storm recovery bonds, before and after giving effect to payments allocated to principal reported
immediately above,
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the difference, if any, between the amount specified immediately above and the principal amount scheduled to be outstanding on that date according to
the related expected amortization schedule,
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any other transfers and payments to be made on such payment date, including amounts paid to the trustee and the servicer, and
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the amounts on deposit in the capital subaccount and the excess funds subaccount, after giving effect to the foregoing payments.
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Unless and until storm recovery
bonds are no longer issued in book-entry form, the reports will be provided to the depository for the storm recovery bonds, or its nominee, as sole beneficial owner of the storm recovery bonds. The reports will be available to bondholders upon
request to the trustee or the servicer. Such reports will not constitute financial statements prepared in accordance with generally accepted accounting principles. The financial information provided to bondholders will not be examined and reported
upon by an independent public accountant. In addition, an independent public accountant will not provide an opinion on the financial information.
Within the prescribed period of time for tax reporting purposes after the end of each calendar year during the term of the storm recovery
bonds, the trustee, so long as it is acting as paying agent and transfer agent and registrar for the storm recovery bonds, will, upon written request by us or any storm recovery bondholder, mail to persons who at any time during the calendar year
were bondholders and received any payment on the storm recovery bonds, a statement containing certain information for the purposes of the bondholders preparation of U.S. federal and state income tax returns.
Continuing Disclosure
To the extent permitted by and consistent with our legal
obligations, we will furnish or file in the periodic reports and other reports to be filed with the SEC pursuant to the Securities Exchange Act of 1934, as amended, as described below, the following information with respect to the outstanding storm
recovery bonds to the extent such information is reasonably available to us:
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statements of storm recovery charge remittances made to the trustee during the six month period ending on the most recent payment date (to be included
in a Form 10-D),
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a statement reporting the balances in the collection account and in each subaccount of the collection account as of the end of business on the most
recent payment date (to be included in a Form 10-D or Form 10-K),
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a statement showing the balance of outstanding storm recovery bonds as of the end of business on the most recent payment date that reflects the actual
periodic payments made on the storm recovery bonds versus the expected periodic payments (to be included in the next Form 10-D or Form 10-K filed),
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the semi-annual servicers certificates, (which will include the preceding monthly servicer certificates) which are required to be submitted
pursuant to the servicing agreement (to be filed with a Form 10-D, Form 10-K or Form 8-K),
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any change in the long-term or short-term credit ratings of the servicer assigned by the rating agencies (to be filed or furnished in a Form 8-K),
and
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material legislative or regulatory developments directly relevant to the outstanding storm recovery bonds (to be filed or furnished in a
Form 8-K).
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Nothing in the
indenture shall preclude us from voluntarily suspending or terminating our filing obligations with the SEC to the extent permitted by applicable law.
We and the Trustee May Modify the Indenture
Modifications of the Indenture that do not Require
Consent of Storm Recovery Bondholders
From time to time, and without the consent of the bondholders (but with prior notice to the rating agencies), we may enter into one or
more agreements supplemental to the indenture for various purposes described in the indenture, including:
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to correct or amplify the description of any property including, without limitation, the collateral subject to the indenture, or to better convey,
assure and confirm to the trustee the property subject to the indenture, or to add additional property,
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to add to the covenants for the benefit of the bondholders and the trustee, or surrender any right or power conferred to us with the indenture,
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to convey, transfer, assign, mortgage or pledge any property to or with the trustee,
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to cure any ambiguity or correct or supplement any provision in the indenture or in any supplemental indenture which may be inconsistent with any other
provision in the indenture or in any supplemental indenture or to make any other provisions with respect to matters or questions arising under the indenture or in any supplemental indenture, provided however, that (i) such action will not, as
evidenced by an opinion of counsel, adversely affect in any material respect the interests of the bondholders and (ii) the rating agency condition shall have been satisfied with respect thereto,
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to evidence the succession of another person to us or to the trustee in accordance with the terms of the indenture,
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to effect qualification under the Trust Indenture Act,
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to qualify the storm recovery bonds for registration with a clearing agency, or
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to satisfy any rating agency requirements.
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We may also, without the consent of the bondholders, enter into one or more other agreements supplemental to the indenture so long as
(i) the supplemental agreement does not, as evidenced by an opinion of counsel, adversely affect the interests of any holders of storm recovery bonds then outstanding in any material respect and (ii) the rating agency condition shall have
been satisfied with respect thereto.
Modifications of the Indenture that Require the Consent of Storm Recovery Bondholders.
We may, with the consent of bondholders holding not less
than a majority of the aggregate outstanding principal amount of the storm recovery bonds or tranches (and with prior notice to the rating agencies), enter into one or more indentures supplemental to the indenture for the purpose of, among other
things, adding any provisions to or changing in any manner or eliminating any of the provisions of the indenture. No supplement, however, may, without the consent of each bondholder of each tranche affected thereby, take certain actions enumerated
in the indenture, including:
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change the date of payment of any installment of principal of or premium, if any, or interest on any storm recovery bond of such tranche, or reduce in
any manner the principal amount thereof, the interest rate thereon or the premium, if any, with respect thereto,
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change the provisions of the indenture and any applicable supplemental indenture relating to the application of collections on, or the proceeds of the
sale of, the collateral to payment of principal of or premium, if any, or interest on the storm recovery bonds of such tranche, or change the coin or currency in which any storm recovery bond or any interest thereon is payable,
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impair the right to institute suit for the enforcement of those provisions of the indenture specified therein regarding payment,
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reduce the percentage of the aggregate amount of the outstanding storm recovery bonds, or of a tranche thereof, the consent of the storm recovery
bondholders of which is required for any supplemental indenture, or the consent of the storm recovery bondholders of which is required for any waiver of compliance with those provisions of the indenture specified therein or of defaults specified
therein and their consequences provided for in the indenture,
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reduce the percentage of the outstanding amount of the storm recovery bonds of such tranche the holders of which are required to consent to direct the
trustee to sell or liquidate the collateral,
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modify any of the provisions of the indenture in a manner so as to affect the amount of any payment of interest, principal or premium, if any, payable
on any storm recovery bond of such tranche on any payment date or change the expected sinking fund schedules or final maturity dates of any storm recovery bonds of such tranche,
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decrease the required capital amount,
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permit the creation of any lien ranking prior to or on a parity with the lien of the indenture with respect to any of the collateral for the storm
recovery bonds of such tranche or, except as otherwise permitted or contemplated in the indenture, terminate the lien of the indenture on any property at any time subject thereto or deprive the holder of any storm recovery bond of the security
provided by the lien of the indenture, or
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cause any material adverse U.S. federal income tax consequences to us, our managers, the seller, the trustee or the then existing bondholders.
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Promptly following the
execution of any supplement to the indenture, the trustee will furnish written notice of the substance of the supplement to each bondholder.
Notification of the Rating Agencies, the APSC, the Trustee and the Storm Recovery Bondholders of Any Modification
If we, Entergy Arkansas or the servicer
or any other party to the applicable agreement:
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proposes to amend, modify, waive, supplement, terminate or surrender, or agree to any other amendment, modification, waiver, supplement, termination or
surrender of, the terms of the sale agreement or the servicing agreement, or
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waives timely performance or observance by Entergy Arkansas or the servicer under the sale agreement or a servicing agreement,
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in each case in a way which would materially
and adversely affect the interests of the storm recovery bondholders, we must first notify the rating agencies of the proposed amendment, modification, supplement, waiver or other action. Upon receiving notification regarding satisfaction of the
rating agency condition, we must thereafter notify the trustee and the APSC in writing and the trustee shall notify the storm recovery bondholders of the proposed amendment, modification, supplement, waiver or other action and whether the rating
agency condition has been satisfied with respect thereto. The trustee will consent to this proposed amendment, modification, supplement, waiver or other action only with the written consent of the holders of a majority of the outstanding principal
amount of the storm recovery bonds of the tranches materially and adversely affected thereby. In determining whether a majority of holders have consented, storm recovery bonds owned by us,
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Entergy Arkansas or any affiliate of us to Entergy Arkansas shall be disregarded, except that, in determining whether the trustee shall be protected in relying upon any such consent, the trustee
shall only be required to disregard any storm recovery bonds it actually knows to be so owned.
Modifications to the Sale Agreement, the Administration Agreement and the Servicing Agreement
With the prior written consent of the trustee, the sale
agreement, the administration agreement and the servicing agreement, may be amended, so long as the rating agency condition is satisfied in connection therewith, at any time and from time to time, without the consent of the storm recovery
bondholders. However, any such amendment may not adversely affect the interest of any storm recovery bondholder in any material respect without the consent of the holders of a majority of the outstanding principal amount of the storm recovery bonds
The parties to the servicing agreement will acknowledge that the financing order provides that the APSC, acting through its authorized legal representative and for the benefit of Arkansas ratepayers, may enforce the servicers obligations
imposed under the servicing agreement pursuant to the financing order to the extent permitted by law.
Enforcement of the Sale Agreement, the Administration Agreement and the Servicing Agreement
The indenture provides that we will take all lawful actions
to enforce our rights under the sale agreement, the administration agreement, and the servicing agreement. The indenture also provides that we will take all lawful actions to compel or secure the performance and observance by Entergy Arkansas, the
administrator and the servicer of their respective obligations to us under or in connection with the sale agreement, the administration agreement, and the servicing agreement. So long as no event of default occurs and is continuing, we may exercise
any and all rights, remedies, powers and privileges lawfully available to us under or in connection with the sale agreement, the administration agreement, and the servicing agreement. However, if we or the servicer propose to amend, modify, waive,
supplement, terminate or surrender in any material respect, or agree to any material amendment, modification, supplement, termination, waiver or surrender of, the process for adjusting the storm recovery charges, we must notify the trustee and the
APSC in writing and the trustee must notify the storm recovery bondholders of this proposal. In addition, the trustee may consent to this proposal only with the written consent of the holders of a majority of the principal amount of the outstanding
storm recovery bonds of the tranches materially and adversely affected thereby and only if the rating agency condition is satisfied.
If an event of default occurs and is continuing, the trustee may, and, at the written direction of the holders of a majority of the
outstanding amount of the storm recovery bonds shall, exercise all of our rights, remedies, powers, privileges and claims against Entergy Arkansas, the administrator and servicer, under or in connection with the sale agreement, administration
agreements and servicing agreement, and any right of ours to take this action shall be suspended.
Our Covenants
We may not consolidate with or merge into any other entity, unless:
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the entity formed by or surviving the consolidation or merger is organized under the laws of the United States or any State;
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the entity expressly assumes, by a supplemental indenture, the performance or observance of all of our agreements and covenants under the indenture and
any series supplement;
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the entity expressly assumes all of our obligations and succeeds to all of our rights under the sale agreement, servicing agreement and any other basic
document to which we are a party;
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no default, event of default or servicer default under the indenture has occurred and is continuing immediately after the merger or consolidation;
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the rating agency condition will have been satisfied with respect to the merger or consolidation;
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we have delivered to Entergy Arkansas, the trustee and the rating agencies a no material adverse tax change opinion of independent tax counsel (as
selected by us, in form and substance reasonably satisfactory to Entergy Arkansas and the trustee) regarding such consolidation or merger;
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any action necessary to maintain the lien and the first priority perfected security interest in the collateral created by the indenture and the series
supplement has been taken, as evidenced by an opinion of independent counsel; and
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we have delivered to the trustee an officers certificate and an opinion of independent counsel, each stating that all conditions precedent in the
indenture provided for relating to the transaction have been complied with.
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We may not sell, convey, exchange, transfer or otherwise dispose of any of our properties or assets included in the collateral to any
person or entity, unless:
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the person or entity acquiring the properties and assets:
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is a U.S. citizen or an entity organized under the laws of the United States or any State,
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expressly assumes, by a supplemental indenture, the performance or observance of all of our agreements and covenants under the indenture and each
series supplement,
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expressly agrees by a supplemental indenture that all right, title and interest so conveyed or transferred will be subject and subordinate to the
rights of bondholders,
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unless otherwise specified in the supplemental indenture, expressly agrees to indemnify, defend and hold us and the trustee harmless against and from
any loss, liability or expense arising under or related to the indenture, each series supplement and the outstanding storm recovery bonds,
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expressly agrees by means of the supplemental indenture that the person (or if a group of persons, then one specified person) will make all filings
with the SEC (and any other appropriate person) required by the Securities Exchange Act of 1934 in connection with the storm recovery bonds; and
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if such sale, conveyance, exchange, transfer or disposal relates to our rights and obligations under the sale agreement or the servicing agreement,
such person or entity assumes all obligations and succeeds to all of our rights under the sale agreement and the servicing agreement, as applicable;
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no default, event of default or servicer default under the indenture has occurred and is continuing immediately after the transactions;
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the rating agency condition has been satisfied with respect to such transaction;
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we have delivered to Entergy Arkansas, the trustee and the rating agencies a no material adverse tax change opinion of independent tax counsel (as
selected by us, in form and substance reasonably satisfactory to Entergy Arkansas and the trustee) regarding such disposition;
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any action necessary to maintain the lien and the first priority perfected security interest in the collateral created by the indenture and each series
supplement has been taken as evidenced by an opinion of counsel of independent counsel; and
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we have delivered to the trustee an officers certificate and an opinion of independent counsel, each stating that the conveyance or transfer
complies with the indenture and the series supplement and all conditions precedent therein provided for relating to the transaction have been complied with.
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We will not, among other things, for so long as any storm recovery bonds are outstanding:
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except as expressly permitted by the indenture, sell, transfer, exchange or otherwise dispose of any of our assets unless directed to do so by the
trustee;
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claim any credit on, or make any deduction from the principal or premium, if any, or interest payable in respect of, the storm recovery bonds (other
than amounts properly withheld from such payments under the Internal Revenue Code or other tax laws) or assert any claim against any present or former bondholder by reason of the payment of the taxes levied or assessed upon any part of the
collateral;
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terminate our existence, or dissolve or liquidate in whole or in part;
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permit the validity or effectiveness of the indenture or any series supplement to be impaired;
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permit the lien of the indenture and any series supplement to be amended, hypothecated, subordinated, terminated or discharged or permit any person to
be released from any covenants or obligations with respect to the storm recovery bonds except as may be expressly permitted by the indenture;
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permit any lien, charge, excise, claim, security interest, mortgage or other encumbrance, other than the lien and security interest granted under the
indenture and the series supplement, to be created on or extend to or otherwise arise upon or burden the collateral or any part thereof or any interest therein or the proceeds thereof (other than tax liens arising by operation of law with respect to
amounts not yet due);
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permit the lien granted under the indenture and each series supplement not to constitute a valid first priority perfected security interest in the
collateral;
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enter into any swap, hedge or similar financial arrangement;
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elect to be classified as an association taxable as a corporation for U.S. federal income tax purposes or otherwise take any action, file any tax
return, or make any election inconsistent with our treatment, for U.S. federal income tax purposes and, to the extent consistent with applicable state tax law, state income and franchise tax purposes, as a disregarded entity that is not
separate from our sole member;
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change our name, identity or structure or the location of our chief executive office, unless at least ten (10) days prior to the effective date of
any such change, we deliver to the trustee such documents, instruments or agreements, executed by us, as are necessary to reflect such change and to continue the perfection of the security interest of the indenture and each series supplement;
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take any action which is subject to the rating agency condition if such action would result in a downgrade; or
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issue any storm recovery bonds under the Act or any similar legislation (other than the storm recovery bonds offered by this prospectus).
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We may not engage in any
business other than financing, purchasing, owning and managing the storm recovery property and the other collateral and the issuance of the storm recovery bonds in the manner contemplated by the financing order and the basic documents, or certain
related activities incidental thereto.
We will
not issue, incur, assume, guarantee or otherwise become liable for any indebtedness except for the storm recovery bonds. Also, we will not, except as contemplated by the storm recovery bonds and the basic documents, make any loan or advance or
credit to, or guarantee, endorse or otherwise become contingently liable in connection with the obligations, stocks or dividends of, or own, purchase, repurchase or acquire (or agree contingently to do so) any stock, obligations, assets or
securities of, or any other interest in, or make any capital contribution to, any other person. We will not, except as contemplated by the storm recovery bonds and the basic documents, make any expenditure (by long-term or operating lease or
otherwise) for capital assets (either real or personal).
We will not make any payments, distributions, dividends or redemptions to any holder of our equity interests in respect of that interest
except in accordance with the indenture.
We will
cause the servicer to deliver to the trustee the annual accountants certificates, compliance certificates, reports regarding distributions and statements to bondholders required by the servicing agreement.
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Events of Default; Rights Upon Event of Default
An event of default with respect to the storm
recovery bonds will be defined in the indenture as any one of the following events:
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a default for five business days in the payment of any interest on any storm recovery bond (whether such failure to pay interest is caused by a
shortfall in storm recovery charges received or otherwise),
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a default in the payment of the then unpaid principal of the storm recovery bonds on the final maturity date for that tranche,
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a default in the observance or performance of any of our covenants or agreements made in the indenture (other than defaults described above) and the
continuation of any default for a period of 30 days after the earlier of (i) the date that written notice of the default is given to us by the trustee or to us and the trustee by the holders of at least 25% in principal amount of the storm
recovery bonds then outstanding or (ii) the date that we had actual knowledge of the default,
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any representation or warranty made by us in the indenture or in any certificate delivered pursuant to the indenture or in connection with the
indenture having been incorrect in any material respect as of the time made, and such breach not having been cured within 30 days after the earlier of (i) the date that notice of the breach is given to us by the trustee or to us and the
trustee by the holders of at least 25% in principal amount of the storm recovery bonds then outstanding or (ii) the date that we had actual knowledge of the default,
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certain events of bankruptcy, insolvency, receivership or liquidation,
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a breach by the State of Arkansas or any of its agencies (including the APSC), officers or employees that violates or is not in accordance with the
States pledge, or
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any other event designated as such in the series supplement and described in the prospectus supplement.
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If an event of default (other than as specified in the sixth
bullet point above) should occur and be continuing with respect to the storm recovery bonds, the trustee or holders of not less than a majority in principal amount of the storm recovery bonds then outstanding may declare the unpaid principal of the
storm recovery bonds and all accrued and unpaid interest thereon to be immediately due and payable. However, the nature of our business will result in payment of principal upon an acceleration of the storm recovery bonds being made as funds become
available. Please read Risk FactorsRisks Associated with the Unusual Nature of the Storm Recovery PropertyForeclosure of the trustees lien on the storm recovery property securing the storm recovery bonds might not be
practical, and acceleration of the storm recovery bonds before maturity might have little practical effect and Risk FactorsYou may experience material payment delays or incur a loss on your investment in the storm recovery bonds
because the source of funds for payment is limited. The holders of a majority in principal amount of the storm recovery bonds may rescind that declaration under certain circumstances set forth in the indenture. Additionally, the trustee may
exercise all of our rights, remedies, powers, privileges and claims against the seller or the servicer under or in connection with the sale agreement, the servicing agreement and the administration agreement. If an event of default as specified in
the sixth bullet above has occurred, the servicer will be obligated to institute (and the trustee, for the benefit of the bondholders, will be entitled and empowered to institute) any suits, actions or proceedings at law, in equity or otherwise, to
enforce the States pledge and to collect any monetary damages as a result of a breach thereof, and each of the servicer and the trustee may prosecute any suit, action or proceeding to final judgment or decree. The servicer would be required to
advance its own funds in order to bring any suits, actions or proceedings and, for so long as the legal actions were pending, the servicer would, unless otherwise prohibited by applicable law or court or regulatory order in effect at that time, be
required to bill and collect the storm recovery charges, perform adjustments and discharge its obligations under the servicing agreement. The costs of any such action would be payable by the seller pursuant to the sale agreement.
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If the storm recovery bonds have been declared to be due and payable following an event of
default, the trustee may, at the written direction of the holders of a majority in principal amount of the storm recovery bonds, either sell the storm recovery property or elect to have us maintain possession of the storm recovery property and
continue to apply storm recovery charge collections as if there had been no declaration of acceleration. There is likely to be a limited market, if any, for the storm recovery property following a foreclosure, in light of the event of default, the
unique nature of the storm recovery property as an asset and other factors discussed in this prospectus. In addition, the trustee is prohibited from selling the storm recovery property following an event of default, other than a default in the
payment of any principal at final maturity or a default for five business days or more in the payment of any interest on any storm recovery bond, unless:
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the holders of all the outstanding storm recovery bonds consent to the sale,
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the proceeds of the sale are sufficient to pay in full the principal of and the accrued interest on the outstanding storm recovery bonds, or
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the trustee determines that the proceeds of the collateral would not be sufficient on an ongoing basis to make all payments on the storm recovery bonds
as those payments would have become due if the storm recovery bonds had not been declared due and payable, and the trustee obtains the consent of the holders of 66 2/3% of the aggregate outstanding amount of the storm recovery bonds.
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Subject to the provisions of
the indenture relating to the duties of the trustee, if an event of default occurs and is continuing, the trustee will be under no obligation to exercise any of the rights or powers under the storm recovery bonds at the request or direction of any
of the holders of storm recovery bonds if the trustee reasonably believes it will not be adequately indemnified against the costs, expenses and liabilities which might be incurred by it in complying with the request. Subject to the provisions for
indemnification and certain limitations contained in the indenture:
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the holders of not less than a majority in principal amount of the outstanding storm recovery bonds will have the right to direct the time, method and
place of conducting any proceeding for any remedy available to the trustee and
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the holders of not less than a majority in principal amount of the storm recovery bonds may, in certain cases, waive any default with respect thereto,
except a default in the payment of principal or interest or a default in respect of a covenant or provision of the indenture that cannot be modified without the consent of all of the holders of the outstanding storm recovery bonds of all tranches
affected thereby.
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With respect
to the storm recovery bonds, no holder of any such storm recovery bond will have the right to institute any proceeding, to avail itself of any remedies provided in the Act or of the right to foreclose on the collateral, or otherwise to enforce the
lien and security interest on the collateral or to seek the appointment of a receiver or trustee, or for any other remedy under the indenture, unless:
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the holder previously has given to the trustee written notice of a continuing event of default,
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the holders of not less than a majority in principal amount of the outstanding storm recovery bonds have made written request of the trustee to
institute the proceeding in its own name as trustee,
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the holder or holders have offered the trustee satisfactory indemnity,
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the trustee has for 60 days failed to institute the proceeding, and
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no direction inconsistent with the written request has been given to the trustee during the 60-day period by the holders of a majority in principal
amount of the outstanding storm recovery bonds.
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In addition, each of the trustee, the bondholders and the servicer will covenant that it will not, prior to the date which is one year and
one day after the termination of the indenture, institute against us or against our managers or our member or members any bankruptcy, reorganization or other proceeding under any federal or state bankruptcy or similar law, subject to the right of
the Pulaski County (Arkansas) Circuit Court to order sequestration and payment of revenues arising with respect to the storm recovery property.
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Neither any manager nor the trustee in its individual capacity, nor any holder of any
ownership interest in us, nor any of their respective owners, beneficiaries, agents, officers, directors, employees, successors or assigns will, in the absence of an express agreement to the contrary, be personally liable for the payment of the
principal of or interest on the storm recovery bonds or for our agreements contained in the indenture.
Actions by Bondholders
Subject to certain exceptions, the holders of not less than a majority of the aggregate outstanding amount of the storm recovery bonds
will have the right to direct the time, method and place of conducting any proceeding for any remedy available to the trustee, or exercising any trust or power conferred on the trustee under the indenture; provided that:
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the direction is not in conflict with any rule of law or with the indenture and would not involve the trustee in personal liability or expense;
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subject to any other conditions specified in the indenture, the consent of 100% of the bondholders is required to direct the trustee to sell the
collateral; and
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the trustee may take any other action deemed proper by the trustee which is not inconsistent with the direction.
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In circumstances under which the trustee is required to seek
instructions from the holders of the storm recovery bonds of any tranche with respect to any action or vote, the trustee will take the action or vote for or against any proposal in proportion to the principal amount of the corresponding tranche, as
applicable, of storm recovery bonds taking the corresponding position. Notwithstanding the foregoing, the indenture allows each bondholder to institute suit for the nonpayment of (1) the interest, if any, on its storm recovery bonds which
remains unpaid as of the applicable due date and (2) the unpaid principal, if any, of any tranche of its storm recovery bonds on the final maturity date therefor.
Annual Report of Trustee
If required by the Trust Indenture Act of 1939, the trustee
will be required to mail each year to all bondholders a brief report. The report must state, among other things:
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the trustees eligibility and qualification to continue as the trustee under the indenture,
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any amounts advanced by it under the indenture,
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the amount, interest rate and maturity date of specific indebtedness owing by us to the trustee in the trustees individual capacity,
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the property and funds physically held by the trustee, and
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any action taken by it that materially affects the storm recovery bonds and that has not been previously reported.
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Annual Compliance Statement
We will file annually with the trustee, the rating agencies
and the APSC, a written statement as to whether we have fulfilled our obligations under the indenture.
Satisfaction and Discharge of Indenture
The indenture will cease to be of further effect with respect to the storm recovery bonds and the trustee, on our written
demand and at our expense, will execute instruments acknowledging satisfaction and discharge of the indenture, when:
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either all storm recovery bonds which have already been authenticated or delivered, with certain exceptions set forth in the indenture, have been
delivered to the trustee for cancellation or either (1) the final scheduled payment date has occurred with respect to all storm recovery bonds not delivered to the
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trustee for cancellation or (2) such storm recovery bonds will be due and payable on their respective final scheduled payment date within one year, and in any such case of clause (1) or
(2), we have irrevocably deposited in trust with the trustee cash and/or U.S. government obligations in an aggregate amount sufficient to pay principal, interest and premium, if any, on the storm recovery bonds and all other sums payable by us
with respect to such storm recovery bonds when scheduled to be paid and to discharge the entire indebtedness on the storm recovery bonds when due,
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we have paid all other sums payable by us under the indenture with respect to the storm recovery bonds, and
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we have delivered to the trustee an officers certificate, an opinion of independent counsel and if required, by the Trust Indenture Act or the
trustee, a certificate from a firm of independent registered public accountants, each stating that there has been compliance with the conditions precedent in the indenture relating to the satisfaction and discharge of the indenture with respect to
the storm recovery bonds.
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Our Legal and Covenant Defeasance Options
We may, at any time, terminate all of our obligations under
the indenture with respect to the storm recovery bonds, referred to herein as the legal defeasance option, or terminate our obligations to comply with some of the covenants in the indenture, including some of the covenants described under
Our Covenants, referred to herein as our covenant defeasance option.
We may exercise the legal defeasance option notwithstanding our prior exercise of the covenant defeasance option. If we exercise the legal
defeasance option, the storm recovery bonds will be entitled to payment only from the funds or other obligations set aside under the indenture for payment thereof on the scheduled final payment date or redemption date therefor as described below.
The storm recovery bonds will not be subject to payment through redemption or acceleration prior to the scheduled final payment date or redemption date, as applicable. If we exercise the covenant defeasance option, the final payment of the storm
recovery bonds may not be accelerated because of an event of default relating to a default in the observance or performance of any of our covenants or agreements made in the indenture.
The indenture provides that we may exercise our legal
defeasance option or our covenant defeasance option only if:
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we irrevocably deposit or cause to be deposited in trust with the trustee cash and/or U.S. government obligations in an aggregate amount
sufficient to pay principal, interest and premium, if any, on the storm recovery bonds and other sums payable by us under the indenture with respect to the storm recovery bonds when scheduled to be paid and to discharge the entire indebtedness on
the storm recovery bonds when due,
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we deliver to the trustee a certificate from a nationally recognized firm of independent registered public accountants expressing its opinion that the
payments of principal and interest on the U.S. government obligations when due and without reinvestment plus any deposited cash will provide cash at times and in sufficient amounts to pay in respect of the storm recovery bonds:
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principal in accordance with the expected sinking fund schedule,
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all other sums payable by us under the indenture with respect to the storm recovery bonds,
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in the case of the legal defeasance option, 95 days pass after the deposit is made and during the 95-day period no default relating to events of
our bankruptcy, insolvency, receivership or liquidation occurs and is continuing at the end of the period,
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no default has occurred and is continuing on the day of this deposit and after giving effect thereto,
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in the case of the legal defeasance option, we deliver to the trustee an opinion of independent tax counsel stating that: we have received from, or
there has been published by, the IRS a ruling, or since the date of execution of the indenture, there has been a change in the applicable U.S. federal income tax law, and in either case confirming that the holders of the storm recovery bonds
will not recognize income, gain or loss for U.S. federal income tax purposes as a result of the exercise of the legal defeasance option and will be subject to U.S. federal income tax on the same amounts, in the same manner and at the same
times as would have been the case if the legal defeasance had not occurred,
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in the case of the covenant defeasance option, we deliver to the trustee an opinion of independent tax counsel to the effect that the holders of the
storm recovery bonds will not recognize income, gain or loss for U.S. federal income tax purposes as a result of the exercise of the covenant defeasance option and will be subject to U.S. federal income tax on the same amounts, in the same
manner and at the same times as would have been the case if the covenant defeasance had not occurred,
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we deliver to the trustee a certificate of one of our officers and an opinion of counsel, each stating that all conditions precedent to the legal
defeasance option or the covenant defeasance option, as applicable, have been complied with as required by the indenture,
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we deliver to the trustee an opinion of independent counsel to the effect that (a) in a case under the Bankruptcy Code in which Entergy Arkansas
(or any of its affiliates, other than us) is the debtor, the court would hold that the deposited cash or U.S. government obligations would not be in the bankruptcy estate of Entergy Arkansas (or any of its affiliates, other than us, that
deposited the cash or U.S. government obligations); and (b) in the event Entergy Arkansas (or any of its affiliates, other than us, that deposited the cash or U.S. government obligations), were to be a debtor in a case under the
Bankruptcy Code, the court would not disregard the separate legal existence of Entergy Arkansas (or any of its affiliates, other than us, that deposited the cash or U.S. government obligations) and us so as to order substantive consolidation
under the Bankruptcy Code of our assets and liabilities with the assets and liabilities of Entergy Arkansas or such other affiliate, and
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the rating agency condition will be satisfied with respect to the exercise of any legal defeasance option or covenant defeasance option.
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THE TRUSTEE
The trustee for the storm recovery bonds will be identified
in the prospectus supplement. You will find the address of the principal office of the trustee, as well as a description of its experience as a trustee, in the prospectus supplement. The trustee may resign at any time by so notifying us. The holders
of a majority in principal amount of the storm recovery bonds then outstanding may remove the trustee by so notifying the trustee and may appoint a successor trustee. We will remove the trustee if the trustee ceases to be eligible to continue in
this capacity under the indenture, the trustee becomes a debtor in a bankruptcy proceeding or is adjudicated insolvent, a receiver, other public officer takes charge of the trustee or its property, the trustee becomes incapable of acting or the
trustee fails to provide to us certain information we reasonably request which is necessary for us to satisfy our reporting obligations under the securities laws. If the trustee resigns or is removed or a vacancy exists in the office of trustee for
any reason, we will be obligated promptly to appoint a successor trustee eligible under the indenture. No resignation or removal of the trustee will become effective until acceptance of the appointment by a successor trustee. We are responsible for
payment of the expenses associated with any such removal or resignation.
The trustee will at all times satisfy the requirements of the Trust Indenture Act and Rule 3a-7 under the Investment Company Act of
1940 and have a combined capital and surplus of at least $50 million and a long term debt rating of BBB (or the equivalent thereof) or better by all of the rating agencies from which a rating is available. If the trustee
consolidates with, merges or converts into, or transfers all or substantially all of its corporate trust business or assets to, another entity, the resulting, surviving or transferee entity will without any further action be the successor trustee.
The trustee shall not be liable for any action it
takes or omits to take in good faith which it believes to be authorized or within its rights or powers; provided that its conduct does not constitute willful misconduct, negligence or bad faith. We have agreed to indemnify the trustee and its
officers, directors, employees and agents against any and all loss, liability or expense (including reasonable attorneys fees and expenses) incurred by it in connection with the administration of the trust and the performance of its duties
under the indenture, provided that we are not required to pay any expense or indemnify against any loss, liability or expense incurred by the trustee through the trustees own willful misconduct, negligence or bad faith.
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SECURITY FOR THE STORM RECOVERY BONDS
General
The storm recovery bonds issued will be payable solely from
and secured solely by a pledge of and lien on the storm recovery property and the other collateral as provided in the indenture. As noted under Description of the Storm Recovery Bonds, we will issue the storm recovery bonds pursuant to
the terms of the indenture. We will establish the particular terms of the storm recovery bonds in a series supplement. We will describe the material terms of the storm recovery bonds in the prospectus supplement.
Pledge of Collateral
To secure the payment of principal of and interest on the
storm recovery bonds and certain other financing costs, we will grant to the trustee a security interest in all of our right, title and interest (whether now owned or hereafter acquired or arising) in and to the following property:
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the storm recovery property and all storm recovery charges,
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our rights under the true-up mechanism,
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our rights under the sale agreement pursuant to which we will acquire the storm recovery property, and under all bills of sale delivered by Entergy
Arkansas pursuant to the sale agreement,
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our rights under the servicing agreement and any subservicing, agency, or collection agreements executed in connection with the servicing agreement,
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our rights under the administration agreement,
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the collection account and all subaccounts of the collection account, and all amounts of cash instruments, investment property or other assets on
deposit therein or credited thereto from time to time and all financial assets and securities entitlements carried therein or credited thereto,
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all of our other property related to the storm recovery bonds, other than any cash released to us by the trustee on any payment date from earnings on
the capital subaccount,
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all present and future claims, demands, causes and choses in action in respect of any or all of the foregoing, and
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all proceeds in respect of any or all of the foregoing.
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The security interest does not extend to:
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amounts representing investment earnings on the capital subaccount or any other subaccount that has been released to us,
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amounts deposited in the capital subaccount or any other subaccount that have been released to us or as we direct following retirement of all storm
recovery bonds, and
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amounts deposited with us on any issuance date for payment of costs of issuance with respect to the storm recovery bonds (together with any interest
earnings thereon).
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We refer to
the foregoing assets in which we, as assignee of the seller, will grant the trustee a security interest as the
collateral
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Security Interest in the Collateral
Section 23-18-907 of the Act provides that storm
recovery property does not constitute property in which a security interest may be created under the Arkansas Uniform Commercial CodeSecured Transactions, § 4-9-101 et seq. Rather, Section 23-18-907(c) of the Act provides
that a valid and enforceable security interest in storm recovery property will attach and be perfected only by a financing order and the execution and delivery
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of a security agreement in connection with issuance of financing instruments such as the storm recovery bonds. The lien and security interest attach automatically at the time when value is
received for the instruments. Upon perfection by filing a financing statement with the Arkansas Secretary of State under Section 23-18-907(d) of the Act, the lien and security interest will be a continuously perfected lien and security interest
in the storm recovery property and all proceeds of the property, whether accrued or not, and will have priority in the order of filing and take precedence over any subsequent judicial or other lien creditor.
The financing order creates a valid and enforceable lien and
security interest in the storm recovery property and the indenture will state that it constitutes a security agreement within the meaning of the Act. The servicer pledges in the servicing agreement to file with the Arkansas Secretary of State on or
before the date of issuance of the storm recovery bonds the filing required by Section 23-18-907 of the Act to perfect the lien of the trustee in the storm recovery property. The seller will represent, at the time of issuance of the storm
recovery bonds, that no prior filing has been made under the terms of Section 23-18-907 of the Act with respect to the storm recovery property securing the storm recovery bonds to be issued other than a filing which provides the trustee with a
first priority perfected security interest in the storm recovery property.
Certain items of the collateral may not constitute storm recovery property, and the perfection of the trustees security interest in
those items of collateral would therefore be subject to the UCC or common law and not Section 23-18-907 of the Act. These items consist of our rights in:
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the sale agreement, the servicing agreement, the administration agreement and any other basic documents,
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the capital subaccount or any other funds on deposit in the collection account which do not constitute storm recovery charge collections, together with
all instruments, investment property or other assets on deposit therein or credited thereto and all financial assets and securities entitlements carried therein or credited thereto which do not constitute storm recovery charge collections,
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all accounts, chattel paper, deposit accounts, documents, general intangibles, goods, instruments, investment property, letters-of-credit,
letter-of-credit rights, money, commercial tort claims and supporting obligations and all of our other property to the extent not storm recovery property, and
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proceeds of the foregoing items.
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Additionally, any contractual rights we have against retail customers (other than the right to impose storm recovery charges and rights
otherwise included in the definition of storm recovery property) would be collateral to which the UCC applies.
As a condition to the issuance of the storm recovery bonds, we will have made all filings and taken any other action required by the UCC
or common law to perfect the lien of the trustee in all the items included in collateral which do not constitute storm recovery property. We will also covenant to take all actions necessary to maintain or preserve the lien and security interest on a
first priority basis. We will represent, along with the seller, at the time of issuance of the storm recovery bonds, that no prior filing has been made with respect to the party under the terms of the UCC, other than a filing which provides the
trustee with a first priority perfected security interest in the collateral.
Right of Foreclosure
Section 23-18-907(f) of the Act provides that if an event of default occurs with respect to the storm recovery bonds, the holders of
the storm recovery bonds or their representatives, as secured parties, may foreclose or otherwise enforce the lien in the storm recovery property as if they were secured parties under Article 9 of the UCC. The APSC may order that amounts
arising from storm recovery charges be transferred to a separate account for the holders benefit, to which their lien and security interest will apply.
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Description of Indenture Accounts
Collection Account
Pursuant to the indenture, we will establish a segregated
trust account in the name of the trustee with an eligible institution, for the storm recovery bonds called the
collection account
. The collection account will be under the sole dominion and exclusive control of the trustee. The trustee will
hold the collection account for our benefit as well as for the benefit of the bondholders. The collection account for the storm recovery bonds will consist of three subaccounts: a
general subaccount
, an
excess funds subaccount
, and a
capital subaccount
, which need not be separate bank accounts. For administrative purposes, the subaccounts may, but need not, be established by the trustee as separate accounts which will be recognized individually as subaccounts and
collectively as the collection account. All amounts in the collection account not allocated to any other subaccount will be allocated to the general subaccount. We may establish additional subaccounts to provide credit enhancement for the storm
recovery bonds as provided in the series supplement. Unless the context indicates otherwise, references in this prospectus to the collection account include each of the subaccounts contained therein.
Permitted Investments for Funds in the Collection
Account
Funds in the collection account
may be invested only in such investments as meet the criteria described below and which mature on or before the business day preceding the next payment date:
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direct obligations of, or obligations fully and unconditionally guaranteed as to timely payment by, the United States of America,
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time deposits and certificates of deposit of depository institutions meeting the requirements of the definition of eligible institution in
the Glossary,
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commercial paper (other than commercial paper issued by Entergy Arkansas or any of its affiliates) having, at the time of investment or contractual
commitment to invest, a rating in the highest rating category from each rating agency from which a rating is available,
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money market funds which have the highest rating from Moodys, S&P and Fitch, if rated by Fitch, or
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any other investment permitted by each rating agency.
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The trustee will have access to the collection account for the purpose of making deposits in and withdrawals from the
collection account in accordance with the indenture. The servicer will select the eligible investments in which funds will be invested, unless otherwise directed by us.
The servicer will remit storm recovery charge payments to the collection account in the manner described under The
Servicing AgreementRemittances to Collection Account.
General Subaccount
The general subaccount will hold all funds held in the collection account that are not held in the other two subaccounts. The servicer
will remit all storm recovery charge payments to the general subaccount. On each payment date, the trustee will draw on amounts in the general subaccount to pay our expenses and to pay interest and make scheduled payments on the storm recovery
bonds, and to make other payments and transfers in accordance with the terms of the indenture. Funds in the general subaccount will be invested in the eligible investments described above.
Excess Funds Subaccount
The servicer will allocate to the excess funds subaccount
storm recovery charge collections available with respect to any payment date in excess of amounts necessary to make the payments specified on such payment date. The excess funds subaccount will also hold all investment earnings on the collection
account (other than investment earnings on the capital subaccount) in excess of such amounts.
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Capital Subaccount
In connection with the issuance of the storm recovery bonds,
the seller, in its capacity as our sole owner, will contribute capital to us in an amount equal to the
required capital level
, which will equal 0.50% of the principal amount of the storm recovery bonds issued. This amount will be funded by
the seller and not from the proceeds of the sale of the storm recovery bonds, and will be deposited into the capital subaccount at the time of issuance. In the event that amounts on deposit in the general subaccount and the excess funds subaccount
are insufficient to make scheduled payments of principal and interest on the storm recovery bonds and payments of fees and expenses contemplated by the first six bullets under How Funds in the Collection Account Will Be Allocated,
the trustee will draw on amounts in the capital subaccount to make such payments up to the lesser of the amount of such insufficiency and the amounts on deposit in the capital subaccount. In the event of any such withdrawal, collected storm recovery
charges available on any subsequent payment date that are not necessary to pay scheduled payments of principal and interest on the storm recovery bonds and payments of fees and expenses will be used to replenish any amounts drawn from the capital
subaccount. If the storm recovery bonds have been retired as of any payment date, the amounts on deposit in the capital subaccount will be released to us, free of the lien of the indenture.
How Funds in the Collection Account Will Be
Allocated
On each payment date, the trustee
will pay or allocate, at the direction of the servicer, all amounts on deposit in the collection account (including investment earnings thereon) which have accumulated from the first billing date of the month in which the prior payment date occurred
until the final billing date of the month immediately preceding the month of the relevant payment date, to pay the following amounts in the following priority:
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amounts owed by us to the trustee, and the total amount of which may be paid in any 12-month period may be capped, as set forth in the prospectus supplement;
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2.
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a servicing fee, which will be a fixed amount specified in the servicing agreement, and any unpaid servicing fees from prior payment dates as described under The
Servicing AgreementServicing Compensation, to the servicer;
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3.
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an administration fee, which will be a fixed amount specified in the administration agreement between us and Entergy Arkansas and the fees owed to our independent
manager(s), which will be a fixed amount specified in an agreement between us and our independent manager(s);
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4.
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all of our other ordinary periodic operating expenses, such as accounting and audit fees, rating agency fees, legal fees and certain reimbursable costs of the servicer
under the servicing agreement, and the total amount of which may be paid in any 12-month period may be capped, as set forth in the prospectus supplement;
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5.
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interest then due on the storm recovery bonds, including any past-due interest;
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6.
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principal then due and payable on the storm recovery bonds as a result of an event of default or on the final maturity date;
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7.
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scheduled principal payments of the storm recovery bonds according to the expected sinking fund schedule, together with any overdue scheduled principal payments;
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8.
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any remaining unpaid operating expenses and any remaining amounts owed pursuant to the basic documents, including indemnity amounts owed to the trustee;
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9.
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replenishment of any shortfalls in the applicable capital subaccount;
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10.
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if there is a positive balance after making the foregoing allocations, so long as no event of default has occurred and is continuing, release to us of an amount not to
exceed the lesser of such balance and the investment earnings on amounts in the applicable capital subaccount;
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11.
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the trustee will pay the remainder, if any, to the applicable excess funds subaccount for distribution on subsequent payment dates; and
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12.
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after principal of and premium, if any, and interest on all storm recovery bonds and all of the other foregoing amounts have been paid in full, the balance (including
all amounts then held in the applicable capital subaccount and the applicable excess funds subaccount), if any, shall be paid to us free and clear from the lien of the indenture and the series supplement.
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If on any payment date funds on deposit in the general
subaccount are insufficient to make the payments contemplated by the first eight clauses above, the trustee will first, draw from amounts on deposit in the applicable excess funds subaccount, and second, draw from amounts on deposit in the
applicable capital subaccount, up to the amount of the shortfall, in order to make those payments in full. If the trustee uses amounts on deposit in the applicable capital subaccount to pay those amounts or make those transfers, as the case may be,
subsequent adjustments to the storm recovery charges will take into account, among other things, the need to replenish those amounts. In addition, if on any payment date funds on deposit in the applicable general subaccount are insufficient to make
the transfers described in the ninth clause above, the trustee will draw from amounts on deposit in the applicable excess funds subaccount to make the transfers notwithstanding the fact that, on that payment date, the obligation to pay unpaid
operating expenses to the persons entitled thereto may not have been fully satisfied.
The trustee will make payments to the bondholders on the payment date as specified in the prospectus supplement.
State Pledge
Section 23-18-911(b) of the Act provides: The
state and its agencies, including the Arkansas Public Service Commission, pledge to and agree with bondholders, the owners of the storm recovery property, and other financing parties that the state will not:
(1) Alter the provisions of this section which make the
storm recovery charges imposed by a financing order irrevocable, binding, and nonbypassable charges;
(2) Take or permit any action that impairs or would impair the value of the storm recovery property; or
(3) Except as allowed under this section, reduce, alter or
impair storm recovery charges that are to be imposed, collected, and remitted for the benefit of the bondholders and other financing parties until any and all principal, interest, premium, financing costs, and other fees, expenses, or charges
incurred, and any contracts to be performed in connection with the related storm recovery bonds have been paid and performed in full.
Nothing in this paragraph shall preclude limitation or alteration if full compensation is made by law for the full protection of the storm
recovery charges collected pursuant to a financing order and of the holders of storm recovery bonds and any assignee or financing party entering into a contract with the electric utility.
The bondholders and the trustee, for the benefit of the
bondholders and the trustee, will be entitled to the benefit of the pledges and agreements of the State of Arkansas set forth in Section 23-18-911 of the Act, and we are authorized to include these pledges and agreements in any contract with
the bondholders, the trustee or with any assignees pursuant to the Act. We have included these pledges and agreements in the indenture and the storm recovery bonds for the benefit of the trustee and the bondholders, and acknowledge that any purchase
by a bondholder of a storm recovery bond is made in reliance on these agreements and pledges of the State of Arkansas.
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WEIGHTED AVERAGE LIFE AND YIELD CONSIDERATIONS
FOR THE STORM RECOVERY BONDS
The rate of principal payments, the amount of each interest payment and the actual final payment date of each tranche of the storm
recovery bonds and the weighted average life thereof will depend primarily on the timing of receipt of storm recovery charges by the trustee and the true-up mechanism. The aggregate amount of collected storm recovery charges and the rate of
principal amortization on the storm recovery bonds will depend, in part, on actual energy usage and energy demands, and the rate of delinquencies and write-offs. The storm recovery charges are required to be adjusted from time to time based in part
on the actual rate of collected storm recovery charges. However, we can give no assurance that the servicer will be able to forecast accurately actual electricity usage and the rate of delinquencies and write-offs or implement adjustments to the
storm recovery charges that will cause collected storm recovery charges to be received at any particular rate. Please read Risk FactorsServicing Risks, Inaccurate consumption forecasting or unanticipated delinquencies
or charge-offs might reduce scheduled payments on the storm recovery bonds and Entergy Arkansas Financing OrderAPSC Guaranteed True-Ups.
If the servicer receives storm recovery charges at a slower
rate than expected, the storm recovery bonds may be retired later than expected. Except in the event of an acceleration of the storm recovery bonds after an event of default, however, the storm recovery bonds will not be paid at a rate faster than
that contemplated in the expected sinking fund schedule for the storm recovery bonds even if the receipt of collected storm recovery charges is accelerated. Instead, receipts in excess of the amounts necessary to amortize the storm recovery bonds in
accordance with the applicable expected sinking fund schedules, to pay interest and related fees and expenses and to fund subaccounts of the collection account will be allocated to the excess funds subaccount. Acceleration of the final maturity date
after an event of default may result in payment of principal earlier than the related scheduled final payment dates. A payment on a date that is earlier than forecast might result in a shorter weighted average life, and a payment on a date that is
later than forecast might result in a longer weighted average life. In addition, if a larger portion of the delayed payments on the storm recovery bonds is received in later years, the storm recovery bonds may have a longer weighted average life.
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THE SALE AGREEMENT
The following summary describes particular material terms and
provisions of the sale agreement pursuant to which we will purchase storm recovery property from the seller. We and Entergy Arkansas have filed the form of the sale agreement as an exhibit to the registration statement of which this prospectus forms
a part. This summary does not purport to be complete and is subject and qualified by reference to the provisions of the sale agreement.
Sale and Assignment of the Storm Recovery Property
The seller will offer and sell storm recovery property to
us, subject to the satisfaction of the conditions specified in the sale agreement and the indenture. We will finance the purchase of storm recovery property through the issuance of storm recovery bonds. On the date of issuance of storm recovery
bonds, the seller will sell to us, without recourse, its entire right, title and interest in and to the storm recovery property to be transferred to us on that transfer date. The storm recovery property will include all of the sellers rights
under the financing order related to such storm recovery property to impose, bill, collect and receive storm recovery charges in an amount sufficient to recover the storm recovery costs and the financing costs approved in that financing order.
Under the Act, each such sale of storm recovery
property will constitute a true sale under state law (other than for federal and state income tax purposes) and is not affected by:
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the commingling of amounts arising with respect to the storm recovery property with other amounts,
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the retention by Entergy Arkansas of a partial or residual interest, including an equity interest or entitlement to any surplus, in the storm recovery
property, whether direct or indirect, or whether subordinate or otherwise,
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any recourse that we may have against Entergy Arkansas, except that any such recourse shall not be created, contingent upon, or otherwise occurring or
resulting from the inability or failure of one or more of Entergy Arkansas customers to timely pay all or a portion of the storm recovery charge,
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any indemnifications, obligations, or repurchase rights made or provided by Entergy Arkansas, except that such indemnity or repurchase rights shall not
be based solely upon the inability or failure of Entergy Arkansas customers to timely pay all or a portion of the storm recovery charge,
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Entergy Arkansas acts as a collector of storm recovery charges relating to the storm recovery property,
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the contrary or other treatment of the sale, conveyance, assignment, or other transfer for tax, financial reporting, or other purposes
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granting or providing to holders of the storm recovery bonds a preferred right to the storm recovery property or credit enhancement by the electric
utility or its affiliates with respect to the storm recovery bonds, or
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our status as a subsidiary of Entergy Arkansas.
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In accordance with the Act, a valid and enforceable lien and
security interest in the storm recovery property will be created upon the issuance of the financing order, the execution and delivery of the security agreement in connection with the issuance of the storm recovery bonds and the receipt of value for
the storm recovery bonds. The lien and security interest attaches when the conditions in the previous sentence have been met and is perfected through the timely filing of the applicable financing statement with the Secretary of State of the State of
Arkansas, in accordance with the rules prescribed under the Act, and will be a continuously perfected lien and security interest in the storm recovery property and all proceeds of the storm recovery property. Upon the issuance of the financing
order, the execution and delivery of the sale agreement and the related bill of sale and the filing of the applicable financing statement with the Arkansas Secretary of State in accordance with the rules prescribed under the Act, the transfer of the
storm recovery property will be perfected as against all third persons, including subsequent judicial or other lien creditors.
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Conditions to the Sale of Storm Recovery Property
Our obligation to purchase and the sellers obligation
to sell storm recovery property on any transfer date is subject to the satisfaction or waiver of each of the following conditions:
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on or prior to the transfer date, the seller must deliver to us a duly executed bill of sale identifying storm recovery property to be conveyed on that
date;
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on or prior to the transfer date, the seller must have received a financing order from the APSC creating the storm recovery property;
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as of the transfer date, the seller may not be insolvent and may not be made insolvent by the sale of storm recovery property to us, and the seller may
not be aware of any pending insolvency with respect to itself;
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as of the transfer date, the representations and warranties of the seller in the sale agreement must be true and correct (except to the extent they
relate to an earlier date), the seller may not have breached any of its covenants in the sale agreement, and the servicer may not be in default under the servicing agreement;
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as of the transfer date, we must have sufficient funds available to pay the purchase price for storm recovery property to be conveyed and all
conditions to the issuance of storm recovery bonds intended to provide the funds to purchase that storm recovery property must have been satisfied or waived;
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on or prior to the transfer date, the seller must have taken all action required to transfer ownership of storm recovery property to be conveyed to us
on the transfer date, free and clear of all liens other than liens created by us pursuant to the basic documents and to perfect such transfer including, without limitation, filing any statements or filings under the Act or the UCC; and we or the
servicer, on our behalf, must have taken any action required for us to grant the trustee a first priority perfected security interest in the collateral and maintain that security interest as of the transfer date;
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the seller must deliver appropriate opinions of counsel to us and to the rating agencies;
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the seller must receive and deliver to us and the trustee a no material adverse tax change opinion of independent tax counsel (as selected by the
seller, and in form and substance reasonably satisfactory to us and the trustee) regarding such sale;
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on and as of the transfer date, our limited liability company agreement, the servicing agreement, the administration agreement, the sale agreement, the
indenture, the Act, any issued financing order and any tariff authorizing the collection of storm recovery charges must be in full force and effect;
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the storm recovery bonds shall have received a rating or ratings as required by the financing order; and
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the seller must deliver to us and to the trustee an officers certificate confirming the satisfaction of each of these conditions.
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Seller
Representations and Warranties
In the sale
agreement, the seller will represent and warrant to us, as of the transfer date, to the effect, among other things, that:
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no portion of the storm recovery property has been sold, transferred, assigned or pledged or otherwise conveyed by the seller to any person other than
us and immediately prior to the sale of the storm recovery property, the seller owns the storm recovery property free and clear of all liens and rights of any other person, and no offsets, defenses or counterclaims exist or have been asserted with
respect to the storm recovery property;
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on the transfer date, immediately upon the sale under the sale agreement, the storm recovery property transferred on the transfer date will be validly
transferred and sold to us, we will own the storm recovery property free and clear of all liens (except for liens created in favor of you and the trustee by
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the Act and the basic documents) and all filings and actions to be made or taken by the seller (including filings with the Secretary of State of Arkansas under the Act) necessary in any
jurisdiction to give us a perfected ownership interest (subject to any lien created by us in your favor under the basic documents or the Act) in the storm recovery property will have been made or taken;
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subject to the clause below regarding assumptions used in calculating the storm recovery charges as of the transfer date, all written information, as
amended or supplemented from time to time, provided by the seller to us with respect to the storm recovery property (including the expected amortization schedule and the financing order) is true and correct in all material respects;
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under the laws of the State of Arkansas (including the Act) and the United States in effect on the transfer date:
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the financing order pursuant to which the rights and interests of the seller have been created, including the right to impose, bill, collect and
receive the storm recovery charges and the interest in and to the storm recovery property, has become final and non-appealable and is in full force and effect;
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as of the issuance of the storm recovery bonds, those storm recovery bonds are entitled to the protection provided in the Act and, accordingly, the
financing order and storm recovery charges are not revocable by the APSC, the tariff is in full force and effect and is not subject to modification by the APSC except for true-up adjustments made in accordance with the Act;
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the process by which the financing order was approved and the financing order and tariff comply with all applicable laws, rules and regulations;
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the tariff has been approved by the APSC in the financing order; and
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no other approval, authorization, consent, order or other action of, or filing with any governmental authority is required in connection with the
creation of the storm recovery property transferred on the transfer date, except those that have been obtained or made;
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under the Act, the State of Arkansas and its agencies, including the APSC, has pledged that it will not alter the provisions of the Act that make the
storm recovery charges irrevocable, binding, and nonbypassable, nor take or permit any action that impairs or would impair the value of the storm recovery property, nor reduce, alter, or impair the storm recovery charges relating to the storm
recovery property until the principal, interest and premium, and any other charges incurred and contracts to be performed in connection with the storm recovery bonds have been paid and performed in full, however, nothing shall preclude limitation or
alteration if full compensation is made by law for the full protection of the storm recovery charges, and consequently the State of Arkansas could not constitutionally take any action of a legislative character, including the repeal or amendment of
the Act, which would substantially limit, alter or impair the storm recovery property or other rights vested in the bondholders pursuant to the financing order, or substantially limit, alter, impair or reduce the value or amount of the storm
recovery property, unless that action is a reasonable exercise of the State of Arkansass sovereign powers and of a character reasonable and appropriate to further a legitimate public purpose, and, under the takings clauses of the Arkansas and
United States Constitutions, the State of Arkansas could not repeal or amend the Act or take any other action in contravention of its pledge and agreement quoted above without paying just compensation to the bondholders, as determined by a court of
competent jurisdiction, if doing so would constitute a permanent appropriation of a substantial property interest of the bondholders in the storm recovery property and deprive the bondholders of their reasonable expectations arising from their
investments in the storm recovery bonds; however, there is no assurance that, even if a court were to award just compensation, it would be sufficient to pay the full amount of principal and interest on the storm recovery bonds;
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based on information available to the seller on the transfer date, the assumptions used in calculating the storm recovery charges as of the transfer
date are reasonable and are made in good faith; however, notwithstanding the foregoing, Entergy Arkansas makes no representation or warranty, express or
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implied, that amounts actually collected arising from those storm recovery charges will in fact be sufficient to meet the payment obligations on the storm recovery bonds or that the assumptions
used in calculating such storm recovery charges will in fact be realized;
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upon the effectiveness of the financing order and the tariff with respect to the storm recovery property and the transfer of such storm recovery
property to us:
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the rights and interests of the seller under the financing order, including the right to impose, bill, collect and receive the storm recovery charges
established in the financing order, become storm recovery property;
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the storm recovery property constitutes a present property right vested in us;
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the storm recovery property includes the right, title and interest of the seller in the financing order and the storm recovery charges, the right to
impose, bill, collect and obtain periodic adjustments (with respect to adjustments, in the manner and with the effect provided in the financing order and the servicing agreement) of the storm recovery charges, and the rates and other charges
authorized by the financing order and all revenues, collections, claims, payments, money or proceeds of or arising from the storm recovery charges;
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the owner of the storm recovery property is legally entitled to bill storm recovery charges and collect payments in respect of the storm recovery
charges in the aggregate sufficient to pay the interest on and principal of the storm recovery bonds in accordance with the indenture, to pay the fees and expenses of servicing the storm recovery bonds, to replenish the capital subaccount to the
required capital level until the storm recovery bonds are paid in full or until the last date permitted for the collection of payments in respect of the storm recovery charges under the financing order, whichever is earlier, and the customer class
allocation percentages in the financing order do not prohibit the owner of the storm recovery property from obtaining adjustments and effecting allocations to the storm recovery charges in order to collect payments of such amounts; and
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the storm recovery property is not subject to any lien other than the lien created by the basic documents;
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the seller is a corporation duly organized and validly existing and in good standing under the laws of the State of Arkansas, with corporate power and
authority to own its properties and conduct its business as currently owned or conducted;
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the seller has the corporate power and authority to obtain the financing order and to own the rights and interests under the financing order relating
to the storm recovery bonds, to sell and transfer those rights and interests to us, whereupon such rights and interests will become storm recovery property;
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the seller has the corporate power and authority to execute and deliver the sale agreement and to carry out its terms, and the execution, delivery and
performance of the sale agreement have been duly authorized by the seller by all necessary corporate action;
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the sale agreement constitutes a legal, valid and binding obligation of the seller, enforceable against it in accordance with its terms, subject to
customary exceptions relating to bankruptcy, creditors rights and equitable principles;
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the consummation of the transactions contemplated by the sale agreement and the fulfillment of its terms do not (a) conflict with or result in a
breach of any of the terms or provisions of or otherwise constitute (with or without notice or lapse of time) a default under the sellers organizational documents or any indenture, or other agreement or instrument to which the seller is a
party or by which it or any of its property is bound, (b) result in the creation or imposition of any lien upon the sellers properties pursuant to the terms of any such indenture, agreement or other instrument (other than any liens that
may be granted in our favor or any liens created by us pursuant to the Act) or (c) violate any existing law or any existing order, rule or regulation applicable to the seller of any governmental authority having jurisdiction over the seller or
its properties;
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no proceeding is pending and, to the sellers knowledge, no proceeding is threatened and no investigation is pending or threatened before any
governmental authority:
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asserting the invalidity of the Act, the financing order, the sale agreement, the storm recovery bonds or the basic documents;
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seeking to prevent the issuance of the storm recovery bonds or the consummation of any of the transactions contemplated by the sale agreement or any of
the other basic documents;
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seeking a determination or ruling that could reasonably be expected to materially and adversely affect the performance by the seller of its obligations
under, or the validity or enforceability of, the Act, the financing order, the storm recovery bonds, the sale agreement or the other basic documents; or
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seeking to adversely affect the U.S. federal income tax or state income or franchise tax classification of the storm recovery bonds as debt;
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except for continuation filings under the UCC and other filings under the Act and the UCC, no governmental approvals, authorizations, consents, orders
or other actions or filings with any governmental authority are required for the seller to execute, deliver and perform its obligations under the sale agreement except those which have previously been obtained or made or are required to be made by
the servicer in the future pursuant to the servicing agreement;
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there is no order by any court providing for the revocation, alteration, limitation or other impairment of the Act, the financing order, the storm
recovery property or the storm recovery charges or any rights arising under any of them or that seeks to enjoin the performance of any obligations under the financing order; and
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after giving effect to the sale of any storm recovery property under the sale agreement, Entergy Arkansas:
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is solvent and expects to remain solvent;
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is adequately capitalized to conduct its business and affairs considering its size and the nature of its business and intended purposes;
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is not engaged and does not expect to engage in a business for which its remaining property represents an unreasonably small portion of its capital;
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reasonably believes that it will be able to pay its debts as they become due; and
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is able to pay its debts as they mature and does not intend to incur, or believes that it will not incur, indebtedness that it will not be able to
repay at its maturity.
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seller will not make any representation or warranty, express or implied, that billed storm recovery charges will be actually collected from customers.
Certain of the representations and warranties that the seller will make in the sale agreement involve conclusions of law. The seller will
make those representations and warranties in order to reflect the understanding of the basis on which we are issuing the storm recovery bonds and to reflect the agreement that if this understanding proves to be incorrect, the seller will be
obligated to indemnify us.
The representations
and warranties made by the seller will survive the execution and delivery of the sale agreement and may not be waived by us or the seller if such waiver would cause the storm recovery bonds not to be rated in one of the four highest categories by
each of the applicable rating agencies. The seller will not be in breach of any representation or warranty as a result of any change in law by means of any legislative enactment, constitutional amendment or voter initiative.
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Covenants of the Seller
In the sale agreement, the seller will make the following
covenants:
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Subject to its right to assign its rights and obligations under the sale agreement, and for a successor to assume the sellers rights and
obligations under the sale agreement, so long as any of the storm recovery bonds are outstanding, the seller or such successor will (a) keep in full force and effect its existence and remain in good standing under the laws of the jurisdiction
of its organization and (b) obtain and preserve its qualifications to do business in those jurisdictions necessary to protect the validity and enforceability of the sale agreement and the other basic documents or to the extent necessary to
perform its obligations under the sale agreement and the other basic documents.
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Except for the conveyances under the sale agreement, the seller will not sell, pledge, assign or transfer, or grant, create, incur, assume or suffer to
exist any lien on, any of the storm recovery property, or any interest therein, and the seller will defend the right, title and interest of us and of the trustee on behalf of the bondholders and itself, in, to and under the storm recovery property
against all claims of third parties claiming through or under the seller. The seller also will covenant that, in its capacity as seller, it will not at any time assert any lien against, or with respect to, any of the storm recovery property.
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If the seller receives any payments in respect of the storm recovery charges or the proceeds thereof other than in its capacity as the servicer, the
seller agrees to pay all those payments to the servicer, on behalf of us, and to hold such amounts in trust for us and the trustee prior to such payment.
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The seller will notify us and the trustee promptly after becoming aware of any lien on any of the storm recovery property, other than the conveyances
under the sale agreement or under the indenture.
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The seller agrees to comply with its organizational or governing documents and all laws, treaties, rules, regulations and determinations of any
governmental authority applicable to it, except to the extent that failure to so comply would not materially adversely affect our or the trustees interests in the storm recovery property or under the basic documents to which the seller is a
party or the sellers performance of its obligations under the basic documents to which the seller is a party.
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So long as any of the storm recovery bonds are outstanding, the seller will:
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treat the storm recovery bonds as debt for all purposes and specifically as our debt, other than for financial reporting, state or federal regulatory
or tax purposes;
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solely for the purposes of federal and state income taxes, treat the storm recovery bonds as indebtedness of the seller (as our sole owner) secured by
the storm recovery bond collateral unless otherwise required by appropriate taxing authorities;
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disclose in its financial statements that we and not the seller are the owner of the storm recovery property and that our assets are not available to
pay creditors of the seller or its affiliates (other than us);
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not own or purchase any storm recovery bonds; and
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disclose the effects of all transactions between us and the seller in accordance with generally accepted accounting principles.
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The seller will agree that, upon the sale by the seller of storm recovery property to us pursuant to the sale agreement:
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to the fullest extent permitted by law, including applicable APSC regulations and the Act, we will have all of the rights originally held by the seller
with respect to the storm recovery property, including the right (subject to the terms of the servicing agreement) to exercise any and all rights and remedies to collect any amounts payable by any retail customer in respect of the storm recovery
property, notwithstanding any objection or direction to the contrary by the seller (and the seller agrees not to make any such objection or to take any such contrary action); and
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any payment by any customer directly to us shall discharge such customers obligations to the seller in respect of the storm recovery property to
the extent of such payment, notwithstanding any objection or direction to the contrary by the seller.
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So long as any of the storm recovery bonds are outstanding:
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in all proceedings relating directly or indirectly to the storm recovery property, the seller will affirmatively certify and confirm that it has sold
all of its rights and interests in and to such property (other than for financial reporting or tax purposes), and will not make any statement or reference in respect of the storm recovery property that is inconsistent with our ownership interest
(other than for financial accounting, state or federal regulatory, or tax purposes),
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the seller will not take any action in respect of the storm recovery property except solely in its capacity as servicer pursuant to the servicing
agreement or as otherwise contemplated by the basic documents,
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the seller will not sell storm recovery property under a separate financing order in connection with the issuance of additional storm recovery bonds
unless the rating agency condition has been satisfied, and
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neither the seller nor the issuing entity will take any action, file any tax return, or make any election inconsistent with the treatment of the
issuing entity, for U.S. federal and state income tax purposes, and state income and franchise tax purposes, as a disregarded entity that is not separate from the seller (or, if relevant, from another sole owner of us, as the issuing entity).
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The seller will execute and file the filings required by law to fully preserve, maintain, protect and perfect our ownership interest in and the
trustees lien on the storm recovery property, including all filings required under the Act and the UCC relating to the transfer of the ownership of the rights and interests related to the storm recovery bonds under the financing order by the
seller to us and the pledge of the storm recovery property to the trustee. The seller will institute any action or proceeding necessary to compel performance by the APSC, the State of Arkansas or any of their respective agents of any of their
obligations or duties under the Act and the financing order. The seller also will take those legal or administrative actions, including defending against or instituting and pursuing legal actions and appearing or testifying at hearings or similar
proceedings, in each case, as may be reasonably necessary (i) to protect us, the bondholders and the trustee from claims, state actions or other actions or proceedings of third parties which, if successfully pursued, would result in a breach of
any representation, warranty or covenant of the seller in the sale agreement and (ii) to block or overturn any attempts to cause a repeal of, modification of or supplement to the Act, the financing order or the rights of holders by legislative
enactment or constitutional amendment that would be materially adverse to us, the trustee or the bondholders or which would otherwise cause an impairment of our rights or those of the bondholders or the trustee. The costs of any such actions or
proceedings described in clause (ii) above shall be reimbursed by the issuing entity to the seller from amounts on deposit in the collection account as an operating expense. The sellers obligations shall survive and continue
notwithstanding that the payment of operating expenses pursuant to the indenture may be delayed (it being understood and agreed that the seller may be required to temporarily advance its own funds to satisfy its obligations hereunder). The seller
designates the issuing entity as its agent and attorney-in-fact to execute any filings of financing statements, continuation statements or other instruments required of the issuing entity, it being understood that the issuing entity shall have no
obligation to execute any such instruments.
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Even if the sale agreement or the indenture is terminated, the seller will not, prior to the date which is one year and one day after the termination
of the indenture and payment in full of the storm recovery bonds or any other amounts owed under the indenture, petition or otherwise invoke or cause us to invoke the process of any court or government authority for the purpose of commencing or
sustaining an involuntary case against us under any federal or state bankruptcy, insolvency or similar law,
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appointing a receiver, liquidator, assignee, trustee, custodian, sequestrator or other similar official or any substantial part of our property, or ordering the winding up or liquidation of our
affairs.
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So long as any of the storm recovery bonds are outstanding, the seller will, and will cause each of its subsidiaries to, pay all taxes, assessments and
governmental charges imposed upon it or any of its properties or assets or with respect to any of its franchises, business, income or property before any penalty accrues if the failure to pay any such taxes, assessments and governmental charges
would, after any applicable grace periods, notices or other similar requirements, result in a lien on the storm recovery property; provided that no such tax need be paid if the seller or any of its subsidiaries is contesting the same in good faith
by appropriate proceedings promptly instituted and diligently conducted and if the seller or such subsidiary has established appropriate reserves as shall be required in conformity with generally accepted accounting principles.
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The seller will make all reasonable efforts to keep each tariff in full force and effect at all times.
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Promptly after obtaining knowledge of any breach in any material respect of its representations, warranties or covenants in the sale agreement, the
seller will notify us, the trustee, the APSC and the rating agencies of the breach.
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The seller will use the proceeds of the sale of the storm recovery property in accordance with the financing order and the Act.
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Upon our request, the seller will execute and deliver such further instruments and do such further acts as may be reasonably necessary to carry out
more effectively the provisions and purposes of the sale agreement.
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Indemnification
The seller will indemnify, defend and hold harmless us, the trustee (for itself and for the benefit of the bondholders) and any of our and
the trustees respective officers, directors, employees and agents against:
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any and all amounts of principal and interest on the storm recovery bonds not paid when due or when scheduled to be paid,
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any deposits required to be made by or to us under the basic documents or the financing order which are not made when required, and
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any and all other liabilities, obligations, losses, claims, damages, payment, costs or expenses incurred by any of these persons
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in each case, as a result of a breach by the
seller of any of its representations, warranties and covenants in the sale agreement.
The seller will indemnify us and the trustee (for itself and for the benefit of the bondholders) and each of their respective officers,
directors, employees, trustees, managers, and agents for, and defend and hold harmless each such person from and against, any and all taxes (other than taxes imposed on the bondholders as a result of their ownership of a storm recovery bond) that
may at any time be imposed on or asserted against any such person as a result of (i) the sale of the storm recovery property to us, (ii) our ownership and assignment of the storm recovery property, (iii) the issuance and sale by us of
the storm recovery bonds or (iv) the other transactions contemplated in the basic documents, including any franchise, sales, gross receipts, general corporation, tangible personal property, privilege or license taxes but excluding any taxes
imposed as a result of a failure of such person to withhold or remit taxes with respect to payments on any storm recovery bond.
In addition, the seller will indemnify, defend and hold harmless the trustee (for itself), our independent manager(s) and any of the
trustees or the independent managers respective affiliates, officers, directors, employees and agents against any and all other liabilities, obligations, losses, claims, damages, payments, costs or expenses incurred by any of these
parties as a result of the sellers breach of any of its representations and
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warranties or covenants contained in the sale agreement, except to the extent of such losses either resulting from the willful misconduct, bad faith or gross negligence of such indemnified
persons or resulting from a breach of a representation or warranty made by such indemnified persons in the indenture or any related documents that gives rise to the sellers breach.
The seller will indemnify the servicer (if the servicer is
not the seller) for the costs of any action instituted by the servicer pursuant to the servicing agreement which are not paid as an operating expense under the indenture.
The indemnification provided for in the sale agreement will survive any repeal of, modification of, or supplement to, or
judicial invalidation of, the Act or any financing order and will survive the resignation or removal of the trustee, or the termination of the sale agreement and will rank in priority with other general, unsecured obligations of the seller. The
seller will not indemnify any party under the indemnity provisions of the sale agreement for any changes in law after the closing date in respect of the storm recovery bonds, whether such changes in law are effected by means of any legislative
enactment, constitutional amendment or any final and non-appealable judicial decision.
Successors to the Seller
Any entity (a) into which the seller may be merged or consolidated and which succeeds to all or the major part of the electric
distribution business of the seller, (b) which results from the division of the seller into two or more entities and which succeeds to all or the major part of the electric distribution business of the seller, (c) which may result from any
merger or consolidation and which succeeds to all or the major part of the electric distribution business of the seller, (d) which may succeed to the properties and assets of the seller substantially as a whole and which succeeds to all or the
major part of the electric distribution business of the seller or (e) which may otherwise succeed to all or the major part of the electric distribution business of the seller, such entity executing an agreement of assumption to perform every
obligation of the seller, such entity shall be the successor to the seller under the sale agreement without the execution or filing of any document or any further act of the parties to the sale agreement. So long as the conditions of any such
assumption are met, Entergy Arkansas will automatically be released from its obligations under the sale agreement. The conditions include that:
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immediately after giving effect to any transaction referred to in this paragraph, no representation, warranty or covenant made in the sale agreement
will have been breached, and no servicer default, and no event that, after notice or lapse of time, or both, would become a servicer default will have occurred and be continuing,
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the successor must execute an agreement of assumption to perform all of the obligations of the seller under the sale agreement;
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officers certificates and opinions of counsel specified in the sale agreement will have been delivered to us, the trustee and the rating
agencies, and
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the rating agencies specified in the sale agreement will have received prior written notice of the transaction.
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Amendment
The sale agreement may be amended in writing by the seller
and us if notice of the amendment is provided by us to each rating agency and the rating agency condition is satisfied and with the prior written consent of the trustee. If any such amendment would adversely affect the interest of any bondholder in
any material respect, the consent of the holders of a majority of the storm recovery bonds is also required.
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THE SERVICING AGREEMENT
The following summary describes the material terms and
provisions of the servicing agreement pursuant to which the servicer is undertaking to service the storm recovery property. We and Entergy Arkansas have filed the form of the servicing agreement as an exhibit to the registration statement of which
this prospectus forms a part. This summary does not purport to be complete and is subject and qualified by reference to the provisions of the servicing agreement.
Servicing Procedures
The servicer, as our agent, will manage, service and
administer, and bill and collect payments in respect of, the storm recovery property according to the terms of the servicing agreement. The servicers duties will include: calculating, billing and collecting the storm recovery charges;
responding to inquiries of retail customers, the APSC or any other governmental authority regarding the storm recovery property; calculating electricity usage; accounting for collections and investigating and handling delinquencies; furnishing
periodic reports and statements to us, the rating agencies and to the trustee; making all filings with the APSC and taking all other actions necessary to perfect our ownership interests in and the trustees lien on the storm recovery property;
making all filings and taking such other action as may be necessary to perfect the trustees lien on and security interest in all collateral that is not storm recovery property; selling, as our agent, as our interests may appear, defaulted or
written off accounts; and taking all necessary action in connection with true-up adjustments. The servicer is required to notify us, the trustee and the rating agencies in writing of any laws or APSC regulations promulgated after the execution of
the servicing agreement that have a material adverse effect on the servicers ability to perform its duties under the servicing agreement. The servicer is also authorized to execute and deliver documents and to make filings and participate in
proceedings on our behalf.
In addition, if we
request, the servicer will provide to us public information about the servicer and any material information about the storm recovery property that is reasonably available, as may be reasonably necessary to enable us to monitor the servicers
performance, and, so long as any storm recovery bonds are outstanding, any information necessary to calculate the storm recovery charges applicable to each customer class. The servicer will also prepare any reports to be filed by us with the SEC and
will cause to be delivered required opinions of counsel to the effect that all filings with the APSC necessary to preserve, protect and perfect the interests of the trustee in the storm recovery property have been made.
Servicing Standards and Covenants
The servicing agreement will require the
servicer, in servicing and administering the storm recovery property, to employ or cause to be employed procedures and exercise or cause to be exercised the same care and diligence it customarily employs and exercises with respect to billing and
collection activities it conducts for its own account and, if applicable, for others.
The servicing agreement will require the servicer to (i) manage, service, administer and make collections in respect of the storm
recovery property with reasonable care and in material compliance with applicable requirements of law, including all applicable regulations of the APSC, (ii) follow customary standards, policies and procedures for the industry in Arkansas in
performing its duties, (iii) use all reasonable efforts, consistent with its customary servicing procedures, to enforce, and maintain rights in respect of, the storm recovery property and to bill and collect the storm recovery charges,
(iv) comply with all requirements of law including all applicable regulations of the APSC applicable to and binding on it relating to the storm recovery property, (v) file all financing statements with the APSC described in the Act and
file and maintain the effectiveness of UCC financing statements with respect to the property transferred under the sale agreement, and (vi) take such other action on our behalf to ensure that the lien of the trustee on the collateral remains
perfected and of first priority.
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The servicer is responsible for instituting any proceeding to compel performance by the
State of Arkansas or the APSC of their respective obligations under the Act, the financing order, any true-up adjustment or any tariff. The servicer is also responsible for instituting any proceeding as may be reasonably necessary to block or
overturn any attempts to cause a repeal, modification or judicial invalidation of the Act or the financing order or the rights of holders of storm recovery property by legislative enactment, voter initiative or constitutional amendment that would be
materially adverse to holders or which would cause an impairment of the rights of the issuing entity or the holders. In any proceedings related to the exercise of the power of eminent domain by any municipality to acquire a portion of Entergy
Arkansas electric distribution facilities, the servicer will assert that the court ordering such condemnation must treat such municipality as a successor to Entergy Arkansas under the Act and the financing order. The servicing agreement also
designates the servicer as the custodian of our records and documents. The servicing agreement requires the servicer to indemnify us, our independent manager(s) and the trustee (for itself and for your benefit) for any negligent act or omission
relating to the servicers duties as custodian.
The Storm Recovery Charge Adjustment Process
Among other things, the servicing agreement requires the
servicer to file, and the Act requires the APSC to approve, semi-annual true-up adjustments to the rate at which storm recovery charges are billed to customers. For more information on the true-up process, please read Entergy Arkansas
Financing OrderTrue-Ups.
The
financing order requires the servicer to make mandatory true-up adjustments semi-annually (or quarterly during the period between the scheduled final payment date and the legal final maturity of the last bond tranche or class), provided that the
first true-up adjustment may occur more than six months following the storm recovery bond issuance date. The true-up adjustment procedure is intended to ensure that storm recovery charge collections will be sufficient to make all scheduled payments
of principal, interest and other amounts in respect of the storm recovery bonds during the next two semi-annual periods (approximately 12 months) (or during the next quarterly period following the scheduled final payment date of the last bond
tranche or class) (as applicable) and to replenish any draws upon the capital subaccount. When filing for a true-up adjustment, the servicer is required to use its most recent forecast of billing determinants, estimates of ongoing financing costs
and forecasted uncollectibles to enhance the accuracy of the adjustment. There is no limit on the amount of the storm recovery charge which may be imposed as a result of a true-up adjustment.
The APSC must be given at least 15 days notice
prior to making the semi-annual true-up adjustment. During this 15 day period the APSC will confirm the mathematical accuracy of the servicers true-up adjustment; the APSCs rights of review are limited to arithmetic errors. In the
event any correction to a true-up adjustment due to mathematical errors in the calculation of the adjustment or otherwise is necessary, it will be made in a future true-up adjustment.
As part of each true-up adjustment, the servicer will
calculate the storm recovery charges necessary to result in:
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all accrued and unpaid interest being paid in full,
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the outstanding principal balance of the storm recovery bonds equaling the amount provided in the expected amortization schedule,
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the amount on deposit in the capital subaccount equaling the required capital level, and
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all other fees, expenses and indemnities of the issuing entity (up to the authorized amounts of such payments set forth in the financing order) being
paid.
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Remittances
to Collection Account
The servicer will make
periodic payments on account of storm recovery charge collections to the trustee for deposit in the collection account. The servicer will remit received collection payments on the storm recovery charges to the collection account no later than the
second business day following receipt of such storm recovery
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charges. For a description of the allocation of the deposits, please read Security for the Storm Recovery BondsHow Funds in the Collection Account Will Be Allocated. Until storm
recovery charge collections are remitted to the collection account, the servicer will not be required to segregate them from its general funds. Please read Risk FactorsRisks Associated With Potential Bankruptcy Proceedings of the Seller
or the Servicer in this prospectus.
Commencing on the date set forth in the prospectus supplement, the servicer will remit to the trustee all storm recovery charges
collections received for such remittance date. In the event that the servicer does not collect in full the amounts owing on bills from customers, such partial payments will be first applied to any amounts due with respect to customer deposits;
second, to all electric service charges of the service other than storm recovery charges; third, to storm recovery charges and fourth to tax and remaining charges billed to customer. The portion owed in respect of storm recovery charges may be
further allocated as between other affiliates of Entergy Arkansas who have issued or may in the future issue storm recovery bonds under the Act.
Servicing Compensation
The servicer will be entitled to receive an annual servicing fee in an amount equal to:
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if Entergy Arkansas or any of its affiliates is not the servicer, an amount agreed upon by the successor servicer and us; however, the APSC must
approve the appointment of the successor servicer, and the annual servicing fee may not exceed 1.25% of the aggregate initial principal amount of all outstanding storm recovery bonds without the approval of the APSC and the satisfaction of the
rating agency condition.
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servicing fee shall be paid semi-annually with half of the servicing fee being paid on each payment date. The servicer will also be entitled to retain any interest earnings on storm recovery charge collections prior to remittance to the collection
account. However, if the servicer has failed to remit storm recovery charge collections to the collection account on or before the second business day following the day that the servicer received such storm recovery charge collections on more than
three occasions during any 12 month period that the storm recovery bonds are outstanding, then thereafter the servicer will be required to pay to the trustee any interest earnings on the storm recovery charge collections received by the
servicer and invested by the servicer prior to remittance to the collection account for so long as the storm recovery bonds remain outstanding. The trustee will pay the servicing fee on each payment date (together with any portion of the servicing
fee that remains unpaid from prior payment dates) to the extent of available funds prior to the distribution of any interest on and principal of the storm recovery bonds. So long as Entergy Arkansas or an affiliate is the servicer, Entergy
Arkansas servicing compensation will be included as an identified revenue credit and reduce revenue requirements for setting its transmission and distribution rates. The expenses of servicing shall likewise be included as a cost of service in
setting such rates.
Servicer
Representations and Warranties; Indemnification
In the servicing agreement, the servicer will represent and warrant to us, as of the date of the issuance of the storm recovery bonds,
among other things, that:
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the servicer is duly organized, validly existing and is in good standing under the laws of the state of its organization, with requisite corporate or
other power and authority to own its properties, to conduct its business as such properties are currently owned and such business is presently conducted by it, and to service the storm recovery property and hold the records related to the storm
recovery property, and to execute, deliver and carry out the terms of the servicing agreement;
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the servicer is duly qualified to do business, 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
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business (including the servicing of the storm recovery property) requires such qualifications, licenses or approvals (except where a failure to qualify would not be reasonably likely to have a
material adverse effect on the servicers business, operations, assets, revenues or properties or to its servicing of the storm recovery property);
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the execution, delivery and performance of the terms of the servicing agreement have been duly authorized by all necessary action on the part of the
servicer under its organizational or governing documents and laws;
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the servicing agreement constitutes a legal, valid and binding obligation of the servicer, enforceable against it in accordance with its terms, subject
to applicable insolvency, reorganization, moratorium, fraudulent transfer and other laws relating to or affecting creditors rights generally from time to time in effect and to general principles of equity, regardless of whether considered in a
proceeding in equity or at law;
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the consummation of the transactions contemplated by the servicing agreement does not conflict with, result in any breach of, nor constitute a default
under the servicers organizational documents or any indenture or other agreement or instrument to which the servicer is a party or by which it or any of its property is bound, result in the creation or imposition of any lien upon the
servicers properties pursuant to the terms of any such indenture or agreement or other instrument (other than any lien that may be granted under the basic documents or any lien created pursuant to Section 23-18-907 of the Act) or violate
any existing law or any existing order, rule or regulation applicable to the servicer;
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each report or certificate delivered in connection with an issuance report letter or delivered in connection with any filing made to the APSC by us
with respect to the storm recovery charges or true-up adjustments will be true and correct in all material respects, or, if based in part on or containing assumptions, forecasts or other predictions of future events, such assumptions, forecasts or
predictions will be reasonably based on historical performance (and facts known to the servicer on the date such report or certificate is delivered);
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no governmental approvals, authorizations, consents, orders or other actions or filings with any governmental authority, are required for the servicer
to execute, deliver and perform its obligations under the servicing agreement except those which have previously been obtained or made or are required to be made by the servicer in the future; and
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no proceeding or investigation is pending and, to the servicers knowledge, no proceeding or investigation is threatened before any governmental
authority having jurisdiction over the servicer or its properties, asserting the invalidity of the servicing agreement or the other basic documents, seeking to prevent issuance of storm recovery bonds or the consummation of the transactions
contemplated by the servicing agreement or other basic documents, seeking a determination that could reasonably be expected to materially and adversely affect the performance by the servicer of its obligations under or the validity or enforceability
of the servicing agreement or the other basic documents or which could reasonably be expected to adversely affect the U.S. federal income tax or state income or franchise tax classification of the storm recovery bonds as debt.
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The servicer will not be
responsible for any ruling, action or delay of the APSC, except those caused by the servicers failure to file required applications in a timely and correct manner or other breach of its duties under the servicing agreement. The servicer also
will not be liable for the calculation of the storm recovery charges and adjustments, including any inaccuracy in the assumptions made in the calculation, so long as the servicer has acted in good faith and has not acted in a negligent manner.
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The Servicer Will Indemnify Us and Other Entities in Limited Circumstances
The servicer will indemnify, defend and hold
harmless us and the trustee (for itself and for your benefit) and the independent manager(s) and each of their respective officers, directors, employees and agents from any and all liabilities, obligations, losses, damages, payments and claims, and
reasonable costs or expenses, arising as a result of:
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the servicers willful misconduct, bad faith or gross negligence in the performance of, or reckless disregard of, its duties or observance of its
covenants under the servicing agreement,
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the servicers breach of any of its representations or warranties, and
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litigation and related expenses relating to its status and obligations as servicer (other than any proceeding the servicer is required to institute
under the servicing agreement).
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The servicer will not be liable, however, for any liabilities, obligations, losses, damages, payments or claims, or reasonable costs or
expenses, resulting from the willful misconduct, bad faith or gross negligence of the party seeking indemnification.
The servicing agreement will also provide that the servicer will release us and our independent manager(s), the trustee and each of our
respective officers, directors and agents from any actions, claims and demands which the servicer, in the capacity of servicer or otherwise, may have against those parties relating to the storm recovery property or the servicers activities,
other than actions, claims and demands arising from the willful misconduct, bad faith or gross negligence of the parties.
Alternative Energy Suppliers
So long as any of the storm recovery bonds are outstanding, if there is a fundamental change in the regulation of public utilities which
permits an alternative electric supplier (an
AES
) to sell electric service to a customer using the transmission or distribution service of EAI, the servicer will take reasonable efforts to assure that the AES bills or collects the storm
recovery charges on our behalf unless required by applicable law or regulation and, to the extent permitted by applicable law or regulation, the rating agency condition is satisfied. If an AES does bill and collect storm recovery charges on our
behalf, the servicer will take reasonable steps to assure that the AES provides us with public financial information with regard to the AES, and any material information relating to the storm recovery property to the extent it is reasonably
available to the AES, as may be necessary and permitted by law to monitor the AES performance under the servicing agreement.
Evidence as to Compliance
The servicing agreement will provide that the servicer will furnish annually to us, the trustee and the rating agencies, on or before
March 31 of each year, beginning March 31, 2011 or, if earlier, on the date on which the annual report on Form 10-K relating to the bonds is required to be filed, a report on its assessment of compliance with specified servicing
criteria as required by Item 1122(a) of Regulation AB, during the preceding 12 months ended December 31(or preceding period since the closing date of the issuance of the storm recovery bonds in the case of the first statement), together
with a certificate by an officer of the servicer certifying the statements set forth therein.
The servicing agreement also provides that the servicer shall cause a firm of independent public accountants will furnish annually to us,
the trustee and the rating agencies on or before March 31 of each year, beginning March 31, 2011 or, if earlier, on the date on which the annual report on Form 10-K relating to the bonds is required to be filed, an annual
accountants report, which will include an attestation report that attests to and reports on the servicers assessment report described in the immediately preceding paragraph, to the effect that the accounting firm has performed agreed
upon procedures in connection with the servicers compliance with its obligations under the servicing agreement during the preceding 12 months, identifying the results of the
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procedures and including any exceptions noted. The report will also indicate that the accounting firm providing the report is independent of the servicer within the meaning of the rules of the
Public Company Accounting Oversight Board. The cost of the report is payable as an operating expense under the indenture.
Copies of the above reports will be filed with the APSC. You may also obtain copies of the above statements and certificates by sending a
written request addressed to the trustee.
The
servicer will also be required to deliver monthly reports and copies of any filings made with the APSC to us and to the trustee and the rating agencies. In addition, the servicer is required to make certain disclosures to its retail customers as is
reasonably requested by the rating agencies.
The
servicer will also be required to deliver to us, the trustee and the rating agencies monthly reports setting forth certain information relating to collections of storm recovery charges received during the preceding calendar month and, shortly before
each payment date, a report setting forth the amount of principal and interest payable to bondholders on such date, the difference between the principal outstanding on the storm recovery bonds and the amounts specified in the related expected
amortization schedule after giving effect to any such payments, and the amounts on deposit in the capital subaccount and excess funds subaccount after giving effect to all transfers and payments to be made on such payment date. The servicer is
required to file copies of these reports with the APSC.
In addition, the servicer is required to send copies of each filing or notice evidencing a true-up adjustment to us, the APSC, the trustee
and the rating agencies. The servicer is also required to prepare and deliver certain disclosures to its retail customers.
Matters Regarding the Servicer
The servicing agreement will provide that Entergy Arkansas may not resign from its obligations and duties as servicer thereunder, except
when Entergy Arkansas delivers to the trustee and the APSC an opinion of independent legal counsel to the effect that Entergy Arkansas performance of its duties under the servicing agreement is no longer permissible under applicable law. No
resignation by Entergy Arkansas as servicer will become effective until a successor servicer has assumed Entergy Arkansas servicing obligations and duties under the servicing agreement.
The servicing agreement will further provide that neither the
servicer nor any of its directors, officers, employees, and agents will be liable to us or to the trustee, our managers, you or any other person or entity, except as provided under the servicing agreement, for taking any action or for refraining
from taking any action under the servicing agreement or for good faith errors in judgment. However, neither the servicer nor any person or entity will be protected against any liability that would otherwise be imposed by reason of willful
misconduct, bad faith or gross negligence in the performance of its duties. The servicer and any of its directors, officers, employees or agents may rely in good faith on the advice of counsel reasonably acceptable to the trustee or on any document
submitted by any person respecting any matters under the servicing agreement. In addition, the servicing agreement will provide that the servicer is under no obligation to appear in, prosecute, or defend any legal action, except as provided in the
servicing agreement at our expense.
Under the
circumstances specified in the servicing agreement, any entity (a) into which the servicer may be merged or consolidated and which succeeds to all or the major part of the electric distribution business of the servicer, (b) which results
from the division of the servicer into two or more entities and which succeeds to all or the major part of the electric distribution business of the servicer, (c) which may result from any merger or consolidation to which the servicer shall be
a party and which succeeds to all or the major part of the electric distribution business of the servicer, (d) which may succeed to the properties and assets of the servicer substantially as a whole and which succeeds to all or the major part
of the electric distribution business of the servicer, or (e) which may otherwise succeed to all or the major part of the electric distribution business of the
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servicer, which entity in any of the foregoing cases executes an agreement of assumption to perform every obligation of the servicer under the servicing agreement, shall be a successor servicer
without the execution or filing of any document or any further act by any of the parties. The following are conditions to the transfer of the duties and obligations to a successor servicer:
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immediately after the transfer, no representation or warranty made by the servicer in the servicing agreement will have been breached and no servicer
default or event which after notice of, lapse of time or both, would become a servicer default, has occurred and is continuing;
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the successor to the servicer must execute an agreement of assumption to perform every obligation of the servicer under the servicing agreement;
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the servicer has delivered to us, the APSC, the trustee and the rating agencies an officers certificate and an opinion of counsel stating that
the transfer complies with the servicing agreement and all conditions to the transfer under the servicing agreement have been complied with;
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the servicer has delivered to us and to the trustee and the rating agencies an opinion of counsel stating either that all necessary filings, including
those with the APSC, to preserve, perfect and maintain the priority of our interests in and the trustees lien on the storm recovery property, have been made or that no filings are required;
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the servicer has given prior written notice to the rating agencies; and
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the servicer has delivered to us, the APSC, the trustee and the rating agencies a no material adverse tax change opinion of independent tax counsel
regarding such transfer.
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long as the conditions of any such assumptions are met, then the prior servicer will automatically be released from its obligations under the servicing agreement.
The servicing agreement will permit the servicer to appoint
any person to perform any or all of its obligations. However, unless the appointed person is an affiliate of Entergy Arkansas, the servicer must receive notice from the rating agencies that the appointment will not result in a reduction or
withdrawal of the then current ratings on any tranche of storm recovery bonds. In the event of any such appointment, the servicer must remain obligated and liable under the servicing agreement.
Servicer Defaults
Servicer defaults under the servicing agreement will
include, among other things:
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any failure by the servicer to remit payments arising from the storm recovery charges into the collection account as required under the servicing
agreement, which failure continues unremedied for five business days after written notice from us or the trustee is received by the servicer or after discovery of the failure by an officer of the servicer;
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any failure by the servicer to duly perform its obligations to make storm recovery charge adjustment filings in the time and manner set forth in the
servicing agreement, which failure continues unremedied for a period of five days;
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any failure by the servicer or, if the servicer is an affiliate of Entergy Arkansas, by Entergy Arkansas to observe or perform in any material respect
any covenants or agreements in the servicing agreement or the other basic documents to which it is a party in its capacity as servicer, which failure materially and adversely affects the rights of related bondholders and which continues unremedied
for 60 days after written notice of this failure has been given to the servicer or, if the servicer is an affiliate of Entergy Arkansas, to Entergy Arkansas by us or by the trustee or after such failure is discovered by an officer of the
servicer;
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any representation or warranty made by the servicer in the servicing agreement or any basic document will prove to have been incorrect when made, which
has a material adverse effect on us or the bondholders and which material adverse effect continues unremedied for a period of 60 days after the giving of written notice to the servicer by us or the trustee after such failure is discovered by an
officer of the servicer; and
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certain events of bankruptcy, insolvency, receivership or liquidation of the servicer.
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Rights Upon a Servicer Default
In the event of a servicer default that remains unremedied,
the trustee will upon the instruction of the holders of storm recovery bonds evidencing not less than a majority in principal amount of then outstanding storm recovery bonds, terminate all the rights and obligations of the servicer under the
servicing agreement, other than the servicers indemnity obligation and obligation to continue performing its functions as servicer until a successor servicer is appointed. After the termination, the trustee will appoint a successor servicer
who will succeed to all the responsibilities, duties and liabilities of the servicer under the servicing agreement and will be entitled to similar compensation arrangements.
In addition, when a servicer defaults through failure to
remit storm recovery charges as described in the first bullet above under Servicer Defaults, the bondholders (subject to the provisions of the indenture) and the trustee as beneficiary of any statutory lien permitted by the Act will be
entitled to (i) apply to Pulaski County (Arkansas) Circuit Court for sequestration and payment of revenues arising from the storm recovery property, (ii) foreclose on or otherwise enforce the lien and security interests in the storm
recovery property and (iii) apply to the APSC for an order that amounts arising from the storm recovery charges be transferred to a separate account for the benefit of the bondholders. If, however, a bankruptcy trustee or similar official has
been appointed for the servicer, and no servicer default other than an appointment of a bankruptcy trustee or similar official has occurred, that trustee or official may have the power to prevent the trustee or the bondholders from effecting a
transfer of servicing. Please read Risk FactorsRisks Associated With Potential Bankruptcy Proceedings of the Seller or the Servicer and How a Bankruptcy May Affect Your Investment in this prospectus.
Under certain circumstances, the trustee may petition the
APSC or a court of competent jurisdiction for the appointment of a successor servicer which, among other conditions, satisfies the rating agency condition. In no event will the trustee be liable for its appointment of a successor servicer. If
Entergy Arkansas or any of its affiliates is not the servicer, the servicing fee will be negotiated by the successor servicer and us; however, the APSC must approve the appointment of, and any annual servicing fee in excess of 1.25% of the aggregate
initial principal amount of all outstanding storm recovery bonds for, any successor servicer. In addition, the servicing fee for any replacement servicer may not exceed 1.25% of the aggregate initial principal amount of all outstanding storm
recovery bonds unless the rating agency condition is satisfied.
Waiver of Past Defaults
Holders of storm recovery bonds evidencing not less than a majority in principal amount of the then outstanding storm recovery bonds, on
behalf of all bondholders, may waive any default by the servicer in the performance of its obligations under the servicing agreement and its consequences, except a default in making any required remittances to the collection account under the
servicing agreement. The servicing agreement will provide that no waiver will impair the bondholders rights relating to subsequent defaults.
Successor Servicer
If for any reason a third-party assumes the role of the servicer under the servicing agreement, the servicing agreement will require the
servicer to cooperate with us and with the trustee and the successor servicer in terminating the servicers rights and responsibilities under the servicing agreement, including the transfer to the successor servicer of all cash amounts then
held by the servicer for remittance or subsequently acquired. The
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APSC must approve the appointment of any successor servicer and the annual servicing fee for the successor servicer may not exceed 1.25% of the aggregate initial principal amount of all
outstanding storm recovery bonds without approval of the APSC and satisfaction of the rating agency condition. The servicing agreement will provide that the servicer will be liable for the reasonable costs and expenses incurred in transferring the
storm recovery property records to the successor servicer and amending the servicing agreement to reflect such succession if such transfer is the result of a servicer default. In all other cases such costs and expenses will be paid by the party
incurring them.
Amendment
The servicing agreement may be amended in
writing by the servicer and us, if the rating agency condition has been satisfied, with the prior written consent of the trustee.
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HOW A BANKRUPTCY MAY AFFECT YOUR INVESTMENT
Challenge to True Sale Treatment
Entergy Arkansas will represent and warrant that the
transfer of the storm recovery property in accordance with the sale agreement constitutes a true and valid sale and assignment of that storm recovery property by Entergy Arkansas to us. It will be a condition of closing for the sale of storm
recovery property pursuant to the sale agreement that Entergy Arkansas will take the appropriate actions under the Act, including filing a financing statement describing storm recovery property, to perfect this sale. The Act provides that a transfer
of storm recovery property by an electric utility to an assignee which the parties have in the governing documentation expressly stated to be a sale or other absolute transfer, in a transaction approved in a financing order, shall be treated as an
absolute transfer of all the transferors right, title and interest, as in a true sale under applicable creditors rights principles, and not as a pledge or other financing, of the relevant storm recovery property. We and
Entergy Arkansas will treat such a transaction as a sale under applicable law. However, we expect that storm recovery bonds will be reflected as debt on Entergy Arkansas consolidated financial statements. In addition, we anticipate that the
storm recovery bonds will be treated as debt of Entergy Arkansas for U.S. federal income tax purposes. Please read Material U.S. Federal Income Tax Consequences. In the event of a bankruptcy of a party to the sale agreement, if
a party in interest in the bankruptcy were to take the position that the transfer of the storm recovery property to us pursuant to the sale agreement was a financing transaction and not a true sale under applicable creditors rights principles,
there can be no assurance that a court would not adopt this position. Even if a court did not ultimately recharacterize the transaction as a financing transaction, the mere commencement of a bankruptcy of Entergy Arkansas and the attendant possible
uncertainty surrounding the treatment of the transaction could result in delays in payments on the storm recovery bonds.
In that regard, we note that the bankruptcy court in
In re: LTV Steel Company, Inc., et al.
, 274 B.R. 278 (Bankr. N. D.
Oh. 2001) issued an interim order that observed that a debtor, LTV Steel Company, which had previously entered into securitization arrangements with respect both to its inventory and its accounts receivable may have at least some equitable
interest in the inventory and receivables, and that this interest is property of the Debtors estate. . . sufficient to support the entry of an interim order permitting the debtor to use proceeds of the property sold in the
securitization. 274 B.R. at 285. The court based its decision in large part on its view of the equities of the case.
LTV and the securitization investors subsequently settled their dispute over the terms of the interim order and the bankruptcy court
entered a final order in which the parties admitted and the court found that the pre-petition transactions constituted true sales. The court did not otherwise overrule its earlier ruling. The LTV memorandum opinion serves as an example
of the pervasive equity powers of bankruptcy courts and the importance that such courts may ascribe to the goal of reorganization, particularly where the assets sold are integral to the ongoing operation of the debtors business.
Even if creditors did not challenge the sale of storm
recovery property as a true sale, a bankruptcy filing by Entergy Arkansas could trigger a bankruptcy filing by us with similar negative consequences for bondholders. In a recent bankruptcy case,
In re General Growth Properties, Inc.
,
General Growth Properties, Inc. filed for bankruptcy together with many of its direct and indirect subsidiaries, including many subsidiaries that were organized as special purpose vehicles. The bankruptcy court upheld the validity of the filings of
these special purpose subsidiaries and allowed the subsidiaries, over the objections of their creditors, to use the lenders cash collateral to make loans to the parent for general corporate purposes. The creditors received adequate protection
in the form of current interest payments and replacement liens to mitigate any diminution in value resulting from the use of the cash collateral, but the opinion serves as a reminder that bankruptcy courts may subordinate legal rights of creditors
to the interests of helping debtors reorganize.
We and Entergy Arkansas have attempted to mitigate the impact of a possible recharacterization of a sale of storm recovery property as a
financing transaction under applicable creditors rights principles. The sale agreement will provide that if the transfer of the applicable storm recovery property is thereafter recharacterized by a court as a financing transaction and not a
true sale, the transfer by Entergy Arkansas will be deemed to have
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granted to us on behalf of ourselves and the trustee a first priority security interest in all Entergy Arkansas right, title and interest in and to the storm recovery property and all
proceeds thereof. In addition, the sale agreement will require the filing of a financing statement relating to the storm recovery property and the proceeds thereof in accordance with the Act. As a result of this filing, we would be a secured
creditor of Entergy Arkansas and entitled to recover against the collateral or its value. This does not, however, eliminate the risk of payment delays or reductions and other adverse effects caused by a bankruptcy of Entergy Arkansas. Further, if,
for any reason, a financing statement relating to the storm recovery property is not filed under the Act or we fail to otherwise perfect our interest in the storm recovery property, and the transfer is thereafter deemed not to constitute a true
sale, we would be an unsecured creditor of Entergy Arkansas.
The Act provides that the creation, granting, perfection and enforcement of liens and security interests in storm recovery property are
governed by the Act and not by the Arkansas UCC. Under the Act, a valid and enforceable lien and security interest in storm recovery property may be created only by a financing order issued under the Act and the execution and delivery of a security
agreement with a holder of storm recovery bonds or a trustee or agent for the holder. The lien and security interest attaches automatically from the time value is received for the storm recovery bonds. Upon perfection through the filing of a
financing statement with the Secretary of State of Arkansas the security interest shall be a continuously perfected lien and security interest in the storm recovery property, with priority in the order of filing and shall take precedence over any
subsequent judicial or other lien creditor. None of this, however, mitigates the risk of payment delays and other adverse effects caused by a bankruptcy of Entergy Arkansas. Further, if, for any reason, a financing statement relating to the storm
recovery property is not filed under the Act or we fail to otherwise perfect our interest in the storm recovery property sold pursuant to the sale agreement, and the transfer is thereafter deemed not to constitute a true sale, we would be an
unsecured creditor of Entergy Arkansas.
Consolidation of the
Issuing Entity and Entergy Arkansas
If
Entergy Arkansas were to become a debtor in a bankruptcy case, a party in interest might attempt to substantively consolidate the assets and liabilities of Entergy Arkansas and us. We and Entergy Arkansas have taken steps to attempt to minimize this
risk. Please read Entergy Arkansas Restoration Funding, LLC, The Issuing Entity in this prospectus. However, no assurance can be given that if Entergy Arkansas were to become a debtor in a bankruptcy case, a court would not order that
our assets and liabilities be substantively consolidated with those of Entergy Arkansas. Substantive consolidation would result in payment of the claims of the beneficial owners of the storm recovery bonds to be subject to substantial delay and to
adjustment in timing and amount under a plan of reorganization in the bankruptcy case.
Status of Storm Recovery Property as Current Property
Entergy Arkansas will represent in the sale agreement, and the Act provides, that the storm recovery property sold pursuant to the sale
agreement constitutes a current property right on the date that it is first transferred or pledged in connection with the issuance of the storm recovery bonds. Nevertheless, no assurance can be given that, in the event of a bankruptcy of Entergy
Arkansas, a court would not rule that the applicable storm recovery property comes into existence only as retail electric customers use electricity.
If a court were to accept the argument that the applicable storm recovery property comes into existence only as retail electric customers
use electricity, no assurance can be given that a security interest in favor of the bondholders of the storm recovery bonds would attach to the storm recovery charges in respect of electricity consumed after the commencement of the bankruptcy case
or that the storm recovery property has been sold to us. If it were determined that the storm recovery property had not been sold to us, and the security interest in favor of the storm recovery bondholders did not attach to the storm recovery
charges in respect of electricity consumed after the commencement of the bankruptcy case, then we would have an unsecured claim against Entergy Arkansas. If so, there would be delays and/or reductions in payments on the storm recovery bonds.
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Whether or not a court determined that storm recovery property had been sold to us pursuant to the sale agreement, no assurances can be given that a court would not rule that any storm recovery
charges relating to electricity consumed after the commencement of the bankruptcy could not be transferred to us or the trustee.
In addition, in the event of a bankruptcy of Entergy Arkansas, a party in interest in the bankruptcy could assert that we should pay, or
that we should be charged for, a portion of Entergy Arkansas costs associated with the transmission or distribution of the electricity, consumption of which gave rise to the storm recovery charge receipts used to make payments on the storm
recovery bonds.
Regardless of whether Entergy
Arkansas is the debtor in a bankruptcy case, if a court were to accept the argument that storm recovery property sold pursuant to the sale agreement comes into existence only as customers use electricity, a tax or government lien or other
nonconsensual lien on property of Entergy Arkansas arising before that storm recovery property came into existence could have priority over our interest in that storm recovery property. Adjustments to the storm recovery charges may be available to
mitigate this exposure, although there may be delays in implementing these adjustments.
Estimation of Claims; Challenges to Indemnity Claims
If Entergy Arkansas were to become a debtor in a bankruptcy case, claims, including indemnity claims, by us or the trustee against Entergy
Arkansas as seller under the sale agreement and the other documents executed in connection therewith would be unsecured claims and would be subject to being discharged in the bankruptcy case. In addition, a party in interest in the bankruptcy may
request that the bankruptcy court estimate any contingent claims that we or the trustee have against Entergy Arkansas. That party may then take the position that these claims should be estimated at zero or at a low amount because the contingency
giving rise to these claims is unlikely to occur. If a court were to hold that the indemnity provisions were unenforceable, we would be left with a claim for actual damages against Entergy Arkansas based on breach of contract principles. The actual
amount of these damages would be subject to estimation and/or calculation by the court.
No assurances can be given as to the result of any of the above-described actions or claims. Furthermore, no assurance can be given as to
what percentage of their claims, if any, unsecured creditors would receive in any bankruptcy proceeding involving Entergy Arkansas.
Enforcement of Rights by the Trustee
Upon an event of default under the indenture, the Act permits the trustee to enforce the security interest in the storm recovery property
sold pursuant to the sale agreement in accordance with the terms of the indenture. In this capacity, the trustee is permitted to request the APSC or the Pulaski County (Arkansas) Circuit Court to order the sequestration and payment to holders of
storm recovery bonds of all revenues arising from the applicable storm recovery charges. There can be no assurance, however, that the APSC or a district court judge would issue this order after a seller bankruptcy in light of the automatic stay
provisions of Section 362 of the United States Bankruptcy Code. In that event, the trustee may under the indenture seek an order from the bankruptcy court lifting the automatic stay with respect to this action by the APSC or a district court
judge and an order requiring an accounting and segregation of the revenues arising from the storm recovery property sold pursuant to the sale agreement. There can be no assurance that a court would grant either order.
Bankruptcy of the Servicer
The servicer is entitled to commingle the storm recovery
charges that it receives with its own funds until each date on which the servicer is required to remit funds to the trustee as specified in the servicing agreement. The Act provides that the relative priority of a lien created under the Act is not
defeated or adversely affected by the commingling of storm recovery charges arising with respect to the storm recovery property with funds of the electric utility. In the event of a bankruptcy of the servicer, a party in interest in the bankruptcy
might assert, and a court might rule, that the storm recovery charges commingled by the servicer with its own funds and held by
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the servicer, prior to and as of the date of bankruptcy were property of the servicer as of that date, and are therefore property of the servicers bankruptcy estate, rather than our
property. If the court so rules, then the court would likely rule that the trustee has only a general unsecured claim against the servicer for the amount of commingled storm recovery charges held as of that date and could not recover the commingled
storm recovery charges held as of the date of the bankruptcy.
However, if the court were to rule on the ownership of the commingled storm recovery charges, the automatic stay arising upon the
bankruptcy of the servicer could delay the trustee from receiving the commingled storm recovery charges held by the servicer as of the date of the bankruptcy until the court grants relief from the stay. A court ruling on any request for relief from
the stay could be delayed pending the courts resolution of whether the commingled storm recovery charges are our property or are property of the servicer, including resolution of any tracing of proceeds issues.
The servicing agreement will provide that the trustee, as our
assignee, together with the other persons specified therein, may vote to appoint a successor servicer that satisfies the rating agency condition. The servicing agreement will also provide that the trustee, together with the other persons specified
therein, may petition the APSC or a court of competent jurisdiction to appoint a successor servicer that meets this criterion. However, the automatic stay in effect during a servicer bankruptcy might delay or prevent a successor servicers
replacement of the servicer. Even if a successor servicer may be appointed and may replace the servicer, a successor may be difficult to obtain and may not be capable of performing all of the duties that Entergy Arkansas as servicer was capable of
performing. Furthermore, should the servicer enter into bankruptcy, it may be permitted to stop acting as servicer.
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MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES
General
The following is a general discussion of the anticipated
material U.S. federal income tax consequences of the purchase, ownership and disposition of the storm recovery bonds. Except as specifically provided below with respect to Non-U.S. Holders (as defined below), this discussion does not
address the tax consequences to persons other than initial purchasers who are U.S. Holders (as defined below) that acquire their storm recovery bonds at the initial offering price and hold their storm recovery bonds as capital assets within the
meaning of Section 1221 of the Internal Revenue Code and it does not address all of the tax consequences relevant to investors that are subject to special treatment under the U.S. federal income tax laws (such as life insurance companies,
retirement plans, regulated investment companies, persons who hold storm recovery bonds as part of a straddle, a hedge or a conversion transaction, U.S. persons that have a functional currency
other than the U.S. dollar, investors in pass-through entities and tax-exempt organizations). This summary also does not address the consequences to holders of the storm recovery bonds under state, local or foreign tax laws.
This summary is based on current provisions of the Internal
Revenue Code, the Treasury Regulations promulgated and proposed thereunder, judicial decisions and published administrative rulings and pronouncements of the IRS and interpretations thereof. All of these authorities and interpretations are subject
to change, and any change may apply retroactively and affect the accuracy of the opinions, statements and conclusions set forth in this discussion.
U.S. Holder and Non-U.S. Holder Defined
A U.S. Holder means a beneficial owner of a
storm recovery bond that, for U.S. federal income tax purposes, is (i) a citizen or individual resident of the United States, (ii) a corporation (including an entity treated as a corporation for U.S. federal income tax purposes)
created or organized in or under the laws of the United States, any state thereof or the District of Columbia, (iii) an estate the income of which is includible in gross income for U.S. federal income tax purposes regardless of its source,
or (iv) a trust if (A) a court in the United States is able to exercise primary supervision over the administration of the trust and one or more U.S. persons have the authority to control all substantial decisions of the trust, or
(B) it has a valid election in place to be treated as a U.S. person under applicable Treasury Regulations. A Non-U.S. Holder means a beneficial owner of a storm recovery bond that is not a U.S. Holder but does not
include (i) an entity or arrangement treated as a partnership for U.S. federal income tax purposes, (ii) a former citizen of the United States or (iii) a former resident of the United States.
If an entity or arrangement treated as a partnership for
U.S. federal income tax purposes is a holder of a storm recovery bond, the U.S. federal income tax treatment of a partner will generally depend on the status of the partner and the activities of the partnership. Partnerships holding storm
recovery bonds (and partners in such partnerships) are encouraged to consult their tax advisors about the particular U.S. federal income tax consequences applicable to them. Similarly, former citizens and former residents of the United States
are encouraged to consult their tax advisors about the particular U.S. federal income tax consequences that may be applicable to them.
ALL PROSPECTIVE INVESTORS ARE ENCOURAGED TO CONSULT THEIR TAX ADVISORS REGARDING THE U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE
PURCHASE, OWNERSHIP AND DISPOSITION OF STORM RECOVERY BONDS IN LIGHT OF THEIR PARTICULAR CIRCUMSTANCES, AS WELL AS THE EFFECT OF ANY FOREIGN, STATE, LOCAL OR OTHER TAX LAWS.
Taxation of the Issuing Entity and
Characterization of the Storm Recovery Bonds
Based on Revenue Procedure 2005-62, 2005-2 CB 507, it is the opinion of Sidley Austin LLP, as tax counsel, that for U.S. federal
income tax purposes, (1) we will not be treated as a taxable entity separate and apart
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from Entergy Arkansas and (2) the storm recovery bonds will be treated as debt of Entergy Arkansas. By acquiring a storm recovery bond, a storm recovery bondholder agrees to treat the storm
recovery bond as debt of Entergy Arkansas, our sole member, for U.S. federal income tax purposes. This opinion is based on certain representations made by us and Entergy Arkansas, on the application of current law to the facts as established by
the indenture and other relevant documents and assumes compliance with the indenture and such other documents as in effect on the date of issuance of the storm recovery bonds.
Tax Consequences To U.S. Holders
Interest
Interest income on the storm recovery bonds, payable at a
fixed rate, will be includible in income by a U.S. Holder when it is received, in the case of a U.S. Holder using the cash receipts and disbursements method of tax accounting, or as it accrues, in the case of a U.S. Holder using the
accrual method of tax accounting. We expect that the storm recovery bonds will not be issued with original issue discount. If the storm recovery bonds are issued with original issue discount, the prospectus supplement for those storm recovery bonds
will address the tax consequences of the purchase, ownership and disposition storm recovery bonds with original issue discount.
Sale or Retirement of Storm Recovery Bonds
On a sale, exchange or retirement of a storm recovery bond, a U.S. Holder will have taxable gain or loss equal to the
difference between the amount received by the U.S. Holder and the U.S. Holders tax basis in the storm recovery bond. A U.S. Holders tax basis in its storm recovery bonds is the U.S. Holders cost, subject to
adjustments. Gain or loss will generally be capital gain or loss, and will be long-term capital gain or loss if the storm recovery bond was held for more than one year at the time of disposition. If a U.S. Holder sells the storm recovery bond
between interest payment dates, a portion of the amount received will reflect interest that has accrued on the storm recovery bond but that has not yet been paid by the sale date. To the extent that amount has not already been included in the
U.S. Holders income, it will be treated as ordinary interest income and not as capital gain.
Tax Consequences to Non-U.S. Holders
Withholding Taxation on Interest
Payments of interest income on the storm recovery bonds received by a Non-U.S. Holder that does not hold its storm
recovery bonds in connection with the conduct of a trade or business in the United States, will generally not be subject to U.S. federal withholding tax, provided that the Non-U.S. Holder does not actually or constructively own 10% or more
of the total combined voting power of all classes of stock of Entergy entitled to vote, is not a controlled foreign corporation that is related to Entergy through stock ownership, is not a bank receiving interest described in
Section 881(c)(3)(A) of the Internal Revenue Code, is not an individual who ceased being a U.S. citizen or long-term resident for tax avoidance purposes, and Entergy or its paying agent receives:
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from a Non-U.S. Holder appropriate documentation to treat the payment as made to a foreign beneficial owner under Treasury Regulations issued
under Section 1441 of the Internal Revenue Code;
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a withholding certificate from a person claiming to be a foreign partnership and the foreign partnership has received appropriate documentation to
treat the payment as made to a foreign beneficial owner in accordance with these Treasury Regulations;
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a withholding certificate from a person representing to be a qualified intermediary that has assumed primary withholding responsibility
under these Treasury Regulations and the qualified intermediary has received appropriate documentation from a foreign beneficial owner in accordance with its agreement with the IRS; or
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a statement, under penalties of perjury from an authorized representative of a financial institution, stating that the financial institution has
received from the beneficial owner a withholding certificate described in these Treasury Regulations or that it has received a similar statement from another financial institution acting on behalf of the foreign beneficial owner.
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In general, it will not be
necessary for a Non-U.S. Holder to obtain or furnish a United States taxpayer identification number to Entergy Arkansas or its paying agent in order to claim any of the foregoing exemptions from U.S. federal withholding tax on payments of
interest. Interest paid to a Non-U.S. Holder will be subject to a U.S. federal withholding tax of 30% upon the actual payment of interest income, except as described above and except where an applicable income tax treaty provides for the
reduction or elimination of the U.S. federal withholding tax or except where the interest is effectively connected with a U.S. trade or business as described in the next sentence. A Non-U.S. Holder generally will be taxable in the
same manner as a U.S. person with respect to interest income if the income is effectively connected with the Non-U.S. Holders conduct of a trade or business in the United States (and, if an income tax treaty applies, is attributable
to a permanent establishment maintained by the Non-U.S. Holder within the United States). Effectively connected income received by a Non-U.S. Holder that is a corporation may in some circumstances be subject to an additional branch
profits tax at a 30% rate, or if applicable, a lower rate provided by an income tax treaty. In order to claim that interest income is effectively connected with the conduct of a U.S. trade or business, a Non-U.S. Holder must timely
provide the appropriate IRS form, generally, IRS Form W-8ECI, to the withholding agent. Any IRS forms that a Non-U.S. Holder provides to a withholding agent may be required to be periodically updated.
Capital Gains Tax Issues
A Non-U.S. Holder generally will not be subject to
U.S. federal income or withholding tax on gain realized on the sale or exchange of storm recovery bonds, unless:
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the Non-U.S. Holder is an individual who is present in the United States for 183 days or more during the taxable year and this gain is from
United States sources; or
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the gain is effectively connected with the conduct by the Non-U.S. Holder of a trade or business in the United States and other requirements are
satisfied.
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Backup
Withholding
Backup withholding of
U.S. federal income tax may apply to payments made in respect of the storm recovery bonds to registered owners who are not exempt recipients and who fail to provide certain identifying information (such as the registered
owners taxpayer identification number) in the required manner. Generally, individuals are not exempt recipients, whereas corporations and certain other entities generally are exempt recipients. Payments made in respect of the storm recovery
bonds to a U.S. Holder must be reported to the IRS, unless the U.S. Holder is an exempt recipient or establishes an exemption. A U.S. Holder can obtain a complete exemption from backup withholding by filing IRS Form W-9
(Payers Request for Taxpayer Identification Number and Certification). Compliance with the identification procedures described above under Withholding Taxation on Interest would establish an exemption from backup withholding
for those Non-U.S. Holders who are not exempt recipients.
In addition, backup withholding of U.S. federal income tax may apply upon the sale of a storm recovery bond to (or through) a broker,
unless either (1) the broker determines that the seller is a corporation or other exempt recipient or (2) the seller provides, in the required manner, certain identifying information and, in the case of a Non-U.S. Holder, certifies
that the seller is a Non-U.S. Holder (and certain other conditions are met). The sale must also be reported by the broker to the IRS, unless either (a) the broker determines that the seller is an exempt recipient or (b) the seller
certifies its non-U.S. status (and certain other conditions are met). Certification of the registered owners non-U.S. status would be made normally on an IRS Form W-8BEN under penalty of perjury, although in certain cases it may
be possible to submit other documentary evidence.
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Any amounts withheld under the backup withholding rules from a payment to a beneficial owner
would be allowed as a refund or a credit against such beneficial owners U.S. federal income tax provided the required information is furnished to the IRS in a timely manner.
Recently Enacted Legislation
Recently enacted legislation will impose a 3.8% tax on the
net investment income (which includes interest and gross proceeds of a disposition of notes) of certain individuals, trusts and estates, for taxable years beginning after December 31, 2012.
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ERISA CONSIDERATIONS
General
The Employee Retirement Income Security Act of 1974, known
as ERISA, and Section 4975 of the Internal Revenue Code impose certain requirements on plans subject to ERISA or Section 4975 of the Internal Revenue Code. ERISA and the Internal Revenue Code also impose certain requirements on fiduciaries
of a plan in connection with the investment of the assets of the plan. For purposes of this discussion, plans include employee benefit plans and other plans and arrangements that provide retirement income, including individual retirement
accounts and annuities and Keogh plans, as well as some collective investment funds and insurance company general or separate accounts in which the assets of those plans, accounts or arrangements are invested. A fiduciary of an investing plan is any
person who in connection with the assets of the plan:
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exercises discretionary authority or control over the management of the plan,
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exercises authority or control over the disposition of the assets of the plan, or
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provides investment advice for a fee.
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Some plans, such as governmental plans, and certain church plans, plans maintained outside the United States primarily for the benefit of
persons substantially all of whom are non-resident aliens, and the fiduciaries of those plans, are not subject to ERISA requirements. Accordingly, assets of these plans may be invested in the storm recovery bonds without regard to the ERISA
considerations described below, subject to the provisions of other applicable federal and state law. Any such plan which is qualified and exempt from taxation under Sections 401(a) and 501(a) of the Internal Revenue Code, however, is subject to
the prohibited transaction rules in Section 503 of the Internal Revenue Code.
ERISA imposes certain general fiduciary requirements on fiduciaries, including:
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investment prudence and diversification, and
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the investment of the assets of the plan in accordance with the documents lawfully governing the plan.
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Section 406 of ERISA and Section 4975 of the
Internal Revenue Code also prohibit a broad range of transactions involving the assets of a plan and persons who have certain specified relationships to the plan, referred to as parties in interest, unless a statutory or administrative
exemption is available. Parties in interest include parties in interest under ERISA and disqualified persons under the Internal Revenue Code. The types of transactions that are prohibited include:
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sales, exchanges or leases of property;
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loans or other extensions of credit; and
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the furnishing of goods or services.
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Certain persons that participate in a prohibited transaction may be subject to an excise tax under Section 4975 of the Internal
Revenue Code or a penalty imposed under Section 502(i) of ERISA, unless a statutory or administrative exemption is available. In addition, the persons involved in the prohibited transaction may have to cancel the transaction and pay an amount
to the plan for any losses realized by the plan or profits realized by these persons. In addition, individual retirement accounts involved in the prohibited transaction may be disqualified which would result in adverse tax consequences to the owner
of the account.
Regulation of
Assets Included in a Plan
A fiduciarys
investment of the assets of a plan in the storm recovery bonds may cause our assets to be deemed assets of the plan. Section 2510.3-101 of the regulations of the U.S. Department of Labor, as modified by Section 3(42) of ERISA,
provides that the assets of an entity will be deemed to be assets of a plan that purchases
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an interest in the entity only if the interest that is purchased by the plan is an equity interest, equity participation by benefit plan investors is significant and none of the exceptions
contained in Section 2510.3-101 of the regulations applies. An equity interest is defined in Section 2510.3-101 of the regulations as an interest in an entity other than an instrument which is treated as indebtedness under applicable local
law and which has no substantial equity features. Although there is no authority directly on point, it is anticipated that the storm recovery bonds will be treated as indebtedness under local law without any substantial equity features.
If the storm recovery bonds were deemed to be equity
interests in us, equity participation by benefit plan investors were deemed to be significant, and none of the exceptions contained in Section 2510.3-101 of the regulations were applicable, then our assets would be considered to be assets of
any plans that purchase the storm recovery bonds. The extent to which the storm recovery bonds are owned by benefit plan investors will not be monitored. If our assets were deemed to constitute plan assets pursuant to
Section 2510.3-101 of the regulations, as modified by Section 3(42) of ERISA, transactions we might enter into, or may have entered into in the ordinary course of business, might constitute non-exempt prohibited transactions under ERISA
and/or Section 4975 of the Internal Revenue Code.
In addition, the acquisition or holding of the storm recovery bonds by or on behalf of a plan could give rise to a prohibited transaction
if we or the trustee, Entergy Arkansas, any other servicer, Entergy, any underwriter or certain of their affiliates has, or acquires, a relationship to an investing plan. Each purchaser of the storm recovery bonds will be deemed to have represented
and warranted that its purchase and holding of the storm recovery bonds will not result in a prohibited transaction.
Before purchasing any storm recovery bonds by or on behalf of a plan, you should consider whether the purchase and holding of storm
recovery bonds might result in a prohibited transaction under ERISA or Section 4975 of the Internal Revenue Code and, if so, whether any prohibited transaction exemption might apply to the purchase and holding of the storm recovery bonds.
Prohibited Transaction Exemptions
If you are a fiduciary of a plan, before
purchasing any storm recovery bonds, you should consider the availability of one of the Department of Labors prohibited transaction class exemptions, referred to as PTCEs, or one of the statutory exemptions provided by ERISA or
Section 4975 of the Internal Revenue Code, which include:
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PTCE 75-1, which exempts certain transactions between a plan and certain broker-dealers, reporting dealers and banks;
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PTCE 84-14, which exempts certain transactions effected on behalf of a plan by a qualified professional asset manager;
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PTCE 90-1, which exempts certain transactions between insurance company separate accounts and parties in interest;
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PTCE 91-38, which exempts certain transactions between bank collective investment funds and parties in interest;
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PTCE 95-60, which exempts certain transactions between insurance company general accounts and parties in interest;
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PTCE 96-23, which exempts certain transactions effected on behalf of a plan by an in-house asset manager; and
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the statutory service provider exemption provided by Section 408(b)(17) of ERISA and Section 4975(d)(20) of the Internal Revenue Code, which
exempts certain transactions between plans and parties in interest that are not fiduciaries with respect to the transaction.
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We cannot provide any assurance that any of these class exemptions or statutory exemptions
will apply with respect to any particular investment in the storm recovery bonds by, or on behalf of, a plan or, even if it were deemed to apply, that any exemption would apply to all transactions that may occur in connection with the investment.
Even if one of these class exemptions or statutory exemptions were deemed to apply, storm recovery bonds may not be purchased with assets of any plan if we or the trustee, Entergy Arkansas, any other servicer, Entergy, any underwriter or any of
their affiliates:
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has authority or control over the investment of the assets of the plan used to purchase the storm recovery bonds; or
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has authority or responsibility to give, or regularly gives, investment advice regarding the assets of the plan used to purchase the storm recovery
bonds, for a fee and under an agreement or understanding that the advice will serve as a primary basis for investment decisions for the assets of the plan, and will be based on the particular investment needs of the plan.
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Consultation with
Counsel
If you are a fiduciary which
proposes to purchase the storm recovery bonds on behalf of or with assets of a plan, you should consider your general fiduciary obligations under ERISA and you should consult with your legal counsel as to the potential applicability of ERISA and the
Internal Revenue Code to any investment and the availability of any prohibited transaction exemption in connection with any investment.
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PLAN OF DISTRIBUTION
We may sell the storm recovery bonds to or through the
underwriters named in the prospectus supplement by a negotiated firm commitment underwriting and public reoffering by the underwriters or another underwriting arrangement that may be specified in the prospectus supplement. We may also offer or place
the storm recovery bonds either directly or through agents. We intend that storm recovery bonds will be offered through these various methods from time to time and that offerings may be made concurrently through more than one of these methods or
that an offering of the storm recovery bonds may be made through a combination of these methods.
The distribution of storm recovery bonds may be effected in one or more transactions at a fixed price or prices, which may be changed, or
at market prices prevailing at the time of sale, at prices related to prevailing market prices or in negotiated transactions or otherwise at varying prices to be determined at the time of sale.
In connection with the sale of the storm recovery bonds,
underwriters or agents may receive compensation in the form of discounts, concessions or commissions. Underwriters may sell storm recovery bonds to dealers at prices less a concession. Underwriters may allow, and the dealers may reallow, a
concession to other dealers. Underwriters, dealers and agents that participate in the distribution of the storm recovery bonds may be deemed to be underwriters and any discounts or commissions received by them from the issuing entity and any profit
on the resale of the storm recovery bonds by them may be deemed to be underwriting discounts and commissions under the Securities Act of 1933. We will identify any of these underwriters or agents, and describe any compensation we give them, in the
prospectus supplement.
RATINGS FOR THE STORM RECOVERY BONDS
We expect that the storm recovery bonds will receive credit
ratings from three NRSROs. A security rating is not a recommendation to buy, sell or hold securities and may be subject to revision or withdrawal at any time by the assigning NRSRO. Each rating should be evaluated independently of any other rating.
No person is obligated to maintain the rating on any storm recovery bonds and, accordingly, we can give no assurance that the ratings assigned to any tranche of the storm recovery bonds upon initial issuance will not be lowered or withdrawn by a
NRSRO at any time thereafter. If a rating of any tranche of storm recovery bonds is revised or withdrawn, the liquidity of this tranche of the storm recovery bonds may be adversely affected. In general, ratings address credit risk and do not
represent any assessment of any particular rate of principal payments on the storm recovery bonds other than the payment in full of each tranche of the storm recovery bonds by the tranche final maturity date, as well as the timely payment of
interest.
Under Rule 17g-5 of the Exchange Act,
NRSROs providing the sponsor with the requisite certification will have access to all information posted on a website by the sponsor for the purpose of determining the initial rating and monitoring the rating after the closing date in respect of the
storm recovery bonds. As a result, an NRSRO other than the NRSRO hired by the sponsor (hired NRSRO) may issue ratings on the storm recovery bonds (Unsolicited Ratings), which may be lower, and could be significantly lower, than the ratings assigned
by the hired NRSROs. The Unsolicited Ratings may be issued prior to, or after, the closing date in respect of the storm recovery bonds and may not be reflected in the prospectus supplement. Issuance of any Unsolicited Rating will not affect the
issuance of the storm recovery bonds. Issuance of an Unsolicited Rating lower than the ratings assigned by the hired NRSRO on the storm recovery bonds might adversely affect the value of the storm recovery bonds and, for regulated entities, could
affect the status of the storm recovery bonds as a legal investment or the capital treatment of the storm recovery bonds. Investors in the storm recovery bonds should consult with their legal counsel regarding the effect of the issuance of a rating
by a non-hired NRSRO that is lower than the ratings disclosed in the prospectus supplement.
A portion of the fees paid by EAI to a NRSRO which is hired to assign a rating on the Bonds is contingent upon the issuance of the storm
recovery bonds. In addition to the fees paid by EAI to a NRSRO at closing, EAI will pay a fee to the NRSRO for ongoing surveillance for so long as the storm recovery bonds are outstanding. However, no NRSRO is under any obligation to continue to
monitor or provide a rating on the storm recovery bonds.
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WHERE YOU CAN FIND MORE INFORMATION
This prospectus is part of a registration statement we and
Entergy Arkansas have filed with the SEC relating to the storm recovery bonds. This prospectus and the prospectus supplement describe the material terms of some of the documents we have filed as exhibits to the registration statement. However, this
prospectus and the prospectus supplement do not contain all of the information contained in the registration statement and the exhibits. Any statements contained in this prospectus or any prospectus supplement concerning the provisions of any
document filed as an exhibit to the registration statement or otherwise filed with the SEC are not necessarily complete. Each statement concerning those provisions is qualified in its entirety by reference to the respective exhibit. Information
filed with the SEC can be inspected at the SECs Internet site located at http://www.sec.gov. You may also read and copy the registration statement, the exhibits and any other documents we file with the SEC at the SECs Public Reference
Room located at 100 F Street, N.E., Washington, D.C. 20549. You may obtain further information regarding the operation of the SECs Public Reference Room by calling the SEC at 1-800-SEC-0330. You may also obtain a copy of our filings with
the SEC at no cost, by writing to or telephoning us at the following address:
Entergy Arkansas Restoration Funding, LLC
425 West Capitol Avenue, 27th floor
Little Rock, Arkansas 72201
Telephone No. (501) 377 5886
We or Entergy Arkansas as sponsor will also file with the SEC all of the periodic reports we or the sponsor are required to file under the
Exchange Act and the rules, regulations or orders of the SEC thereunder.
The SEC allows us to incorporate by reference into this prospectus information we or the sponsor file with the SEC. This means
we can disclose important information to you by referring you to the documents containing the information. The information we incorporate by reference is considered to be part of this prospectus, unless we update or supersede that information by the
information contained in a prospectus supplement or information that we or the sponsor file subsequently that is incorporated by reference into this prospectus. We are incorporating into this prospectus any future filing, which we or Entergy
Arkansas, but solely in its capacity as our sponsor, make with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act (excluding any annual reports on Form 10-K). These reports will be filed under our own name as issuing entity.
Any statement contained in this prospectus, in any prospectus supplement or in a document incorporated or deemed to be incorporated by reference in this prospectus or any prospectus supplement will be deemed to be modified or superseded for purposes
of this prospectus and any prospectus supplement to the extent that a statement contained in this prospectus, any prospectus supplement or in any separately filed document which also is or is deemed to be incorporated by reference herein modifies or
supersedes that statement. Any statement so modified or superseded will not be deemed, except as so modified or superseded, to constitute part of this prospectus or the prospectus supplement.
LEGAL MATTERS
Certain legal matters relating to the storm recovery bonds,
including certain U.S. federal income tax matters, will be passed on by Sidley Austin LLP, counsel to Entergy Arkansas and the issuing entity. Certain other legal matters relating to the storm recovery bonds will be passed on by Richards,
Layton & Finger, P.A., special Delaware counsel to the issuing entity, by Williams & Anderson PLC, Little Rock, Arkansas, Arkansas regulatory counsel to Entergy Arkansas and the issuing entity, and by Pillsbury Winthrop Shaw
Pittman LLP, counsel to the underwriters. Pillsbury Winthrop Shaw Pittman LLP regularly represents affiliates of Entergy Arkansas in connection with various legal matters not relating to the offering of storm recovery bonds covered by this
prospectus.
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GLOSSARY OF DEFINED TERMS
Set forth below is a list of some of the defined terms used
in this prospectus which, except as otherwise noted in a prospectus supplement, are also used in the prospectus supplement:
Act
means the Arkansas Electric Utility Storm Recovery Securitization Act, codified as Ark. Code Ann. 23-18-901
et seq.
, that allows, among other things, for the securitization of storm recovery costs.
AES
means an alternative energy supplier.
APSC
means the Arkansas Public Service Commission.
Basic documents
means, with respect to the storm recovery bonds, the administration agreement, sale agreement,
servicing agreement, indenture and any supplements thereto or bills of sale given by the seller and the notes evidencing the storm recovery bonds.
Bankruptcy Code
means Title 11 of the United States Code, as amended.
Business day
means any day other than a Saturday, a
Sunday or a day on which banking institutions in Little Rock, Arkansas or New York, New York are, or DTC is, authorized or obligated by law, regulation or executive order to remain closed.
Capital subaccount
means that subaccount of the
collection account into which the seller will contribute capital in an amount equal to the required capital level.
Clearstream
means Clearstream Banking, société anonyme.
Collateral
means all of the assets of the issuing
entity pledged to the trustee for the benefit of the holders of the storm recovery bonds, which includes the storm recovery property, all rights of the issuing entity under the sale agreement, the servicing agreement and the other documents entered
into in connection with the storm recovery bonds, all rights to the collection account and the subaccounts of the collection account (other than cash released to us from earnings on amounts in the capital account), and all other property of the
issuing entity relating to the storm recovery bonds, including all proceeds in respect of the foregoing.
Collection account
means the segregated trust account designated the collection account and held by the trustee under the
indenture.
DTC
means The Depository Trust
Company, New York, New York, and its nominee holder, Cede & Co.
Eligible institution
means (1) the corporate trust department of the trustee or a subsidiary thereof, so long as the trustee
or a subsidiary thereof have a credit rating from each rating agency in one of its generic rating categories which signifies investment grade or (2) a depository institution organized under the laws of the United States of America or any State
(or any domestic branch of a foreign bank), which (i) has either (A) a short-term issuer rating of AAA by S&P and A2 by Moodys, and, if rated by Fitch, AAA by Fitch or (B) a long-term
issuer rating of A-1 + by S&P and P-1 by Moodys or any other long-term or short-term rating acceptable to the rating agencies and (ii) whose deposits are insured by the Federal Deposit Insurance
Corporation.
Entergy Arkansas
means
Entergy Arkansas, Inc.
Entergy Arkansas
Funding
means Entergy Arkansas Restoration Funding, LLC.
Entergy
means Entergy Corporation.
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ERISA
means the Employee Retirement Income Security Act of 1974, as amended.
Euroclear
means Euroclear Bank SA/NV.
Excess funds subaccount
means that
subaccount of the collection account into which funds collected by the servicer in excess of amounts necessary to make the payments specified on a given payment date.
Exchange Act
means the Securities Exchange Act of
1934, as amended.
Financing costs
means
the debt service costs and the other costs of issuing, supporting and servicing the storm recovery bonds, as authorized in the financing order.
Financing order
, as used in this prospectus, means an irrevocable order issued by the APSC to Entergy Arkansas which, among other
things, governs the amount of storm recovery bonds that may be issued and terms for collections of the storm recovery charges. As used in a prospectus supplement, the term may be used to refer to a financing order relating to specific storm recovery
bonds, including the order issued on June 16, 2010 which became final and non-appealable on July 1, 2010 and will become irrevocable upon issuance of the storm recovery bonds.
Fitch
means Fitch, Inc.
General subaccount
means that subaccount of the
collection account that will hold funds held in the collection account that are not held in the other subaccounts of the collection account.
Indenture
means the indenture to be entered into between the issuing entity and the trustee, providing for the issuance of storm
recovery bonds, as the same may be amended and supplemented from time to time.
Internal Revenue Code
means the Internal Revenue Code of 1986, as amended.
IRS
means the Internal Revenue Service of the United
States.
Issuing Entity
means Entergy
Arkansas Restoration Funding, LLC.
kWh
means kilowatt-hour.
Moodys
means
Moodys Investors Service, Inc.
MWh
means megawatt-hour.
No material adverse tax change opinion
means, with respect to any action, an opinion of independent tax counsel that, as a result
of such action (i) we will not be subject to United States federal income tax as an entity separate from our sole owner and that the storm recovery bonds will be treated as debt of our sole owner for United States federal tax purposes and
(ii) for United States federal income tax purposes, the issuance of the storm recovery bonds will not result in gross income to the seller.
Nonbypassable
refers to the right of the servicer to collect the storm recovery charges from all existing and future retail
customers located within Entergy Arkansas service territory, even if its service territory is acquired by another utility.
Non-U.S. Holder
means a beneficial owner of a storm recovery bond that is not a U.S. Holder but does not include
(i) an entity or arrangement treated as a partnership for U.S. federal income tax purposes, (ii) a former citizen of the United States or (iii) a former resident of the United States.
NRSRO
means a nationally recognized statistical rating
organization
.
Payment date
means
the date or dates on which interest and principal are to be payable on the storm recovery bonds.
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PTCE
means a prohibited transaction class exemption of the United States Department
of Labor.
Rating agencies
means
Moodys, S&P and Fitch.
Rating agency
condition
means, with respect to any action, the notification in writing to each rating agency of such action and the confirmation by S&P to the servicer, the trustee and the issuing entity that such action will not result in a suspension,
reduction or withdrawal of the then rating by such rating agency of any outstanding tranche of storm recovery bonds.
Record date
means the date or dates with respect to each payment date on which it is determined the person in whose name each storm
recovery bond is registered will be paid on the respective payment date.
Required capital level
means the amount required to be funded in the capital subaccount for the storm recovery bonds, which will
equal 0.50% of the principal amount of storm recovery bonds issued by us.
Retail customer
or
retail electric customer
means a retail customer within Entergy Arkansas service territory.
S&P
means Standard and Poors
Ratings Services, a Division of The McGraw-Hill Companies.
Sale agreement
means the sale agreement to be entered into between the issuing entity and Entergy Arkansas, pursuant to which
Entergy Arkansas sells and the issuing entity buys storm recovery property.
SEC
means the U.S. Securities and Exchange Commission.
Series supplement
means a supplement to the indenture
which establishes the terms of the storm recovery bonds.
Service territory
means, with regard to Entergy Arkansas, the certificated service area of Entergy Arkansas as it existed on
June 16, 2010 (the date of the financing order), as the same may expanded thereafter, within which Entergy Arkansas may recover storm recovery costs and financing costs through nonbypassable storm recovery charges assessed on retail electric
customers within that area.
Servicer
means
Entergy Arkansas, acting as the servicer, and any successor or assignee servicer, which will service the storm recovery property under the servicing agreement with the issuing entity.
Servicing agreement
means the servicing agreement to
be entered into between the issuing entity and the servicer, as the same may be amended and supplemented from time to time, pursuant to which the servicer undertakes to service storm recovery property.
Storm recovery charges
means statutorily-created,
nonbypassable, consumption-based charges. Storm recovery charges are irrevocable and payable through Entergy Arkansas by existing and future retail electric customers who consume electricity that is transmitted or distributed within EAIs
service territory.
Storm recovery property
means, with regard to Entergy Arkansas or the issuing entity, all of Entergy Arkansas right, title, and interest in and to certain property established pursuant to a financing order which is then transferred to the issuing entity,
including the irrevocable right to impose, bill, collect and receive storm recovery charges payable by existing and future retail customers in Entergy Arkansas service territory as it existed on June 16, 2010, as it may be expanded, in an
amount sufficient to recover the storm recovery costs and financing costs established in the financing order.
Treasury Regulations
means proposed or issued regulations promulgated from time to time under the Internal Revenue Code.
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True-up mechanism
or
true-up adjustment
means the mechanism required by the
financing order whereby the servicer will file with APSC semi-annual adjustments to the applicable storm recovery charges based on the forecast of the most recent billing determinants, estimates of ongoing financing costs and forecasted
uncollectibles by the servicer to ensure the projected recovery of amounts sufficient to provide timely payment of the scheduled principal of and interest on the storm recovery bonds and all financing costs during the two subsequent payment periods
(approximately 12 months). To the extent any storm recovery bonds remain outstanding after the scheduled maturity date of the last bond tranche, true-up adjustments will be made quarterly until the storm recovery bonds and all financing costs
are paid in full. Adjustments will immediately be reflected in the customers next billing cycle. Any corrections for mathematical errors will be reflected in the next true-up. There is no cap on the level of storm recovery charges
that may be imposed on retail electric customers as a result of the true-up mechanism. Through the true-up mechanism, retail electric customers in each customer class cross share in the liabilities of all other retail electric customers in such
customer class for the payment of storm recovery charges.
Trust Indenture Act
means the Trust Indenture Act of 1939, as amended.
UCC
means, unless the context otherwise requires, the
Uniform Commercial Code, as in effect in the relevant jurisdiction, as amended from time to time.
U.S. Holder
means a beneficial owner of a storm recovery bond that, for U.S. federal income tax purposes, is (i) a
citizen or individual resident of the United States, (ii) a corporation (including any entity treated as a corporation for U.S. federal income tax purposes) created or organized in or under the laws of the United States, any state thereof
or the District of Columbia, (iii) an estate the income of which is includible in gross income for U.S. federal income tax purposes regardless of its source, or (iv) a trust if (A) a court in the United States is able to exercise
primary supervision over administration and one or more U.S. persons have the authority to control all substantial decisions of the trust or (B) the trust has a valid election in place to be treated as a U.S. person under applicable
Treasury Regulations.
100
Entergy Arkansas, Inc. (NYSE:EHA)
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Entergy Arkansas, Inc. (NYSE:EHA)
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