Sec. 16-245k. Security interest in transition property described; creation; perfection. Transferring transition property. Duration of department's authority to issue financing orders. - Connecticut Statutes

      Sec. 16-245k. Security interest in transition property described; creation; perfection. Transferring transition property. Duration of department's authority to issue financing orders. (a) A security interest in transition property is valid, is enforceable against the pledgor and third parties, subject to the rights of any third parties holding security interests in the transition property perfected in the manner described in this section, and attaches when all of the following have taken place:

      (1) The department has issued the financing order authorizing the competitive transition assessment included in the transition property.

      (2) Value has been given by the pledgees of the transition property.

      (3) The pledgor has signed a security agreement covering the transition property.

      (b) A valid and enforceable security interest in transition property is perfected when it has attached and when a financing statement has been filed in accordance with part 5 of article 9 of title 42a naming the pledgor of the transition property as "debtor" and identifying the transition property. In such case, the financing statement shall be filed as if the debtor were located in this state. Any description of the transition property shall be sufficient if it refers to the financing order creating the transition property. A copy of the financing statement shall be filed with the department by the electric company or electric distribution company or the financing entity that is the pledgor or transferor of the transition property, and the department may require the electric company or electric distribution company or the financing entity to make other filings with respect to the security interest in accordance with procedures it may establish, provided that the filings shall not affect the perfection of the security interest.

      (c) A perfected security interest in transition property is a continuously perfected security interest in all revenues and proceeds arising with respect thereto, whether or not the revenues or proceeds have accrued. Conflicting security interests shall rank according to priority in time of perfection. Transition property shall constitute property for all purposes, including for contracts securing rate reduction bonds, whether or not the revenues and proceeds arising with respect thereto have accrued.

      (d) Subject to the terms of the security agreement covering the transition property and the rights of any third parties holding security interests in the transition property perfected in the manner described in this section, the validity and relative priority of a security interest created under this section are not defeated or adversely affected by the commingling of revenues arising with respect to the transition property with other funds of the electric company or electric distribution company that is the pledgor or transferor of, or the collection agent with respect to, the transition property, or by any security interest in a deposit account of that electric company or electric distribution company into which the revenues are deposited or in such revenues themselves perfected under article 9 of title 42a or otherwise. Subject to the terms of the security agreement, the pledgees of the transition property shall have a perfected security interest in all cash and deposit accounts of the electric company or electric distribution company in which revenues arising with respect to the transition property have been commingled with other funds, but the perfected security interest shall be limited to an amount not greater than the amount of the revenues with respect to the transition property received by the electric company or electric distribution company within twelve months before (1) any default under the security agreement, or (2) the institution of insolvency proceedings by or against the electric company or electric distribution company, less payments from the revenues to the pledgees during that twelve-month period.

      (e) If an event of default occurs under the security agreement covering the transition property, the pledgees of the transition property, subject to the terms of the security agreement, shall have all rights and remedies of a secured party upon default under article 9 of title 42a, and shall be entitled to foreclose or otherwise enforce their security interest in the transition property, subject to the rights of any third parties holding prior security interests in the transition property perfected in the manner provided in this section. In addition, the department may require, in the financing order creating the transition property, that, in the event of default by the electric company or electric distribution company in payment of revenues arising with respect to the transition property, the department and any successor thereto, upon the application by the pledgees or transferees, including transferees under this section, of the transition property, and without limiting any other remedies available to the pledgees or transferees by reason of the default, shall order the sequestration and payment to the pledgees or transferees of revenues arising with respect to the transition property. Any order shall remain in full force and effect notwithstanding any bankruptcy, reorganization, or other insolvency proceedings with respect to the debtor, pledgor, or transferor of the transition property. Any surplus in excess of amounts necessary to pay principal, premium, if any, interest, costs, and arrearages on the rate reduction bonds, and other costs arising under the security agreement, shall be remitted to the debtor or to the pledgor or transferor.

      (f) Sections 42a-9-204 and 42a-9-205 shall apply to a pledge of transition property by an electric company or electric distribution company, an affiliate of an electric company or electric distribution company, or a financing entity.

      (g) This section sets forth the terms by which a consensual security interest can be created and perfected in the transition property. Unless otherwise ordered by the department with respect to any series of rate reduction bonds on or prior to the issuance of the series, there shall exist a statutory lien as provided in this subsection. Upon the effective date of the financing order, there shall exist a first priority lien on all transition property then existing or thereafter arising pursuant to the terms of the financing order. This lien shall arise by operation of this section automatically without any action on the part of the electric company or electric distribution company, any affiliate thereof, the financing entity, or any other person. This lien shall secure all obligations, then existing or subsequently arising, to the holders of the rate reduction bonds issued pursuant to the financing order, the trustee or representative for the holders, and any other entity specified in the financing order. The persons for whose benefit this lien is established shall, upon the occurrence of any defaults specified in the financing order, have all rights and remedies of a secured party upon default under article 9 of title 42a, and shall be entitled to foreclose or otherwise enforce this statutory lien in the transition property. This lien shall attach to the transition property regardless of who shall own, or shall subsequently be determined to own, the transition property including any electric company or electric distribution company, any affiliate thereof, the financing entity, or any other person. This lien shall be valid, perfected, and enforceable against the owner of the transition property and all third parties upon the effectiveness of the financing order without any further public notice; provided, however, that any person may, but shall not be required to, file a financing statement in accordance with subsection (b) of this section. Financing statements so filed may be "protective filings" and shall not be evidence of the ownership of the transition property. A perfected statutory lien in transition property is a continuously perfected lien in all revenues and proceeds arising with respect thereto, whether or not the revenues or proceeds have accrued. Conflicting liens shall rank according to priority in time of perfection. Transition property shall constitute property for all purposes, including for contracts securing rate reduction bonds, whether or not the revenues and proceeds arising with respect thereto have accrued. In addition, the department may require, in the financing order creating the transition property, that, in the event of default by the electric company or electric distribution company in payment of revenues arising with respect to transition property, the department and any successor thereto, upon the application by the beneficiaries of the statutory lien, and without limiting any other remedies available to the beneficiaries by reason of the default, shall order the sequestration and payment to the beneficiaries of revenues arising with respect to the transition property. Any order shall remain in full force and effect notwithstanding any bankruptcy, reorganization, or other insolvency proceedings with respect to the debtor, pledgor, or transferor of the transition property. Any surplus in excess of amounts necessary to pay principal, premium, if any, interest, costs, and arrearages on the rate reduction bonds, and other costs arising in connection with the documents governing the rate reduction bonds, shall be remitted to the debtor or to the pledgor or transferor.

      (h) A transfer of transition property by an electric company or electric distribution company to an affiliate or to a financing entity, or by an affiliate of an electric company or electric distribution company or a financing entity to another financing entity, 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 of the transferor's right, title, and interest, as in a true sale, and not as a pledge or other financing, of the transition property, in each case notwithstanding any contrary treatment of such transfer for accounting, tax, or other purposes. Granting to holders of rate reduction bonds a preferred right to revenues of the electric company or electric distribution company or the financing entity, or the provision by the company of other credit enhancement with respect to rate reduction bonds, shall not impair or negate the characterization of any transfer as a true sale, in each case notwithstanding any contrary treatment of such transfer for accounting, tax or other purposes.

      (i) A transfer of transition property shall be deemed perfected as against third persons when both of the following have taken place:

      (1) The department has issued the financing order authorizing the competitive transition assessment included in the transition property.

      (2) An assignment of the transition property in writing has been executed and delivered to the transferee.

      (j) As between bona fide assignees of the same right for value without notice, the assignee first filing a financing statement in accordance with part 5 of article 9 of title 42a naming the assignor of the transition property as debtor and identifying the transition property has priority. In such case, the financing statement shall be filed as if the debtor were located in this state. Any description of the transition property shall be sufficient if it refers to the financing order creating the transition property. A copy of the financing statement shall be filed by the assignee or the financing entity with the department, and the department may require the assignor or the assignee or the financing entity to make other filings with respect to the transfer in accordance with procedures it may establish, but these filings shall not affect the perfection of the transfer.

      (k) Any successor to the electric company or electric distribution company, whether pursuant to any bankruptcy, reorganization, or other insolvency proceeding, or pursuant to any merger, sale, or transfer, by operation of law, or otherwise, shall perform and satisfy all obligations of the electric company or electric distribution company pursuant to sections 16-245e to 16-245k, inclusive, in the same manner and to the same extent as the electric company or electric distribution company, including, but not limited to, collecting and paying to the holders of rate reduction bonds or their representatives or the applicable financing entity revenues arising with respect to the transition property sold to the applicable financing entity or pledged to secure rate reduction bonds.

      (l) The authority of the department to issue financing orders pursuant to sections 16-245e to 16-245k, inclusive, shall expire on December 31, 2008. The expiration of the authority shall have no effect upon financing orders adopted by the department pursuant to sections 16-245e to 16-245k, inclusive, or any transition property arising therefrom, or upon the charges authorized to be levied thereunder, or the rights, interests, and obligations of the electric company or electric distribution company or a financing entity or holders of rate reduction bonds pursuant to the financing order, or the authority of the department to monitor, supervise, or take further action with respect to the financing order in accordance with the terms of sections 16-245e to 16-245k, inclusive, and of the financing order.

      (P.A. 98-28, S. 14, 117; P.A. 01-132, S. 166, 167; P.A. 03-62, S. 19, 20; Sept. 8 Sp. Sess. P.A. 03-1, S. 7; P.A. 04-180, S. 4.)

      History: P.A. 98-28 effective July 1, 1998; P.A. 01-132 amended Subsecs. (b) and (j) to replace "part 4" with "part 5" of article 9 of title 42a and add provision that in each case the financing statement shall be filed as if the debtor were located in this state; P.A. 03-62 amended Subsec. (b) to rephrase and reposition provision requiring the financing statement to be filed as if the debtor were located in this state and amended Subsec. (j) to make a technical change; Sept. 8 Sp. Sess. P.A. 03-1 amended Subsecs. (b), (h) and (j) to add references to the financing entity and amended Subsec. (d) to add reference to the collection agent with respect to the transition property and make a technical change, effective September 10, 2003; P.A. 04-180 amended Subsec. (b) to provide that the department may require the financing entity to make other filings with respect to the security interest, effective June 1, 2004.