UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549



____________________



FORM 10-Q





[√] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934





FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2016



― OR ―



[   ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



____________________





Commission File Number 333-91935





Oncor Electric Delivery Transition Bond Company LLC

(Exact Name of Registrant as Specified in its Charter)





____________________



Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes       No    √      



Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes    √       No ___



Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.



Large accelerated filer ___ Accelerated filer ___ Non-Accelerated filer    √     (Do not check if a smaller reporting company)

Smaller reporting company ___



Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes ___   No    √ 



As of May 4, 2016, all outstanding membership interests in Oncor Electric Delivery Transition Bond Company LLC were held by Oncor Electric Delivery Company LLC.



Oncor Electric Delivery Transition Bond Company LLC meets the conditions set forth in General Instructions (H) (1) (a) and (b) of Form 10-Q and is therefore filing this report with the reduced disclosure format.





 

---

 







TABLE OF CONTENTS





Oncor Electric Delivery Transition Bond Company LLC’s annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and any amendments to those reports are made available to the public, free of charge, on the Oncor Electric Delivery Company LLC website at http://www.oncor.com as soon as reasonably practicable after they have been filed with or furnished to the Securities and Exchange Commission.  The information on Oncor Electric Delivery Company LLC’s website or available by hyperlink from the website shall not be deemed a part of, or incorporated by reference into, this quarterly report on Form 10-Q.

 

---

 

GLOSSARY



When the following terms and abbreviations appear in the text of this report, they have the meanings indicated below.





 

---

 

PART I.  FINANCIAL INFORMATION



Item 1.  FINANCIAL STATEMENTS

ONCOR ELECTRIC DELIVERY TRANSITION BOND COMPANY LLC

CONDENSED STATEMENTS OF INCOME

(Unaudited)

See Notes to Financial Statements.



CONDENSED STATEMENTS OF CASH FLOWS

(Unaudited)



See Notes to Financial Statements.

---

 

ONCOR ELECTRIC DELIVERY TRANSITION BOND COMPANY LLC

CONDENSED BALANCE SHEETS

(Unaudited)









See Notes to Financial Statements.



---

 

ONCOR ELECTRIC DELIVERY TRANSITION BOND COMPANY LLC

NOTES TO CONDENSED FINANCIAL STATEMENTS

(Unaudited)



1.DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES



Description of Business



References in this report to “we,” “our,” “us” and “the company” are to Bondco as apparent in the context.  See “Glossary” for definition of terms and abbreviations.



We are a bankruptcy-remote, special-purpose Delaware limited liability company, wholly-owned by Oncor.  Oncor is a regulated electricity transmission and distribution company principally engaged in providing delivery services to REPs, including subsidiaries of TCEH, that sell power in the north-central, eastern and western parts of Texas.  Oncor is a majority-owned (approximately 80%) subsidiary of Oncor Holdings, which is a direct, wholly-owned subsidiary of EFIH, a direct, wholly-owned subsidiary of EFH Corp.



We were organized for the limited purposes of purchasing and owning transition property and issuing Transition Bonds to recover generation-related regulatory assets and other qualified costs.  During 2015, the 2003 Bonds matured and were paid in full while the remaining 2004 Bonds mature in May 2016.  As such, it is anticipated that the transition property and related debt service costs will be fully recovered in the second quarter of 2016, which will complete the business purpose of Bondco.  We anticipate the dissolution of Bondco at some point thereafter. Final true-up proceedings for the Transition Bonds are expected to be conducted by Oncor and the PUCT during 2016.



We are structured and operated in a manner such that in the event of bankruptcy proceedings involving Oncor, our assets would not be consolidated into the bankruptcy estate of Oncor.  Oncor is not the owner of the transition property described herein, and our assets are not available to pay creditors of Oncor or any of its affiliates.



Various “ring-fencing” measures have been taken to enhance the separateness between the Oncor Ring-Fenced Entities and the Texas Holdings Group and Oncor’s credit quality.  These measures serve to mitigate Oncor’s and Oncor Holdings’ credit exposure to the Texas Holdings Group and to reduce the risk that the assets and liabilities of Oncor or Oncor Holdings would be substantively consolidated with the assets and liabilities of the Texas Holdings Group in connection with a bankruptcy of one or more of those entities, including the EFH Bankruptcy Proceedings discussed below.  Such measures include, among other things: Oncor’s sale of a 19.75% equity interest to Texas Transmission in November 2008; maintenance of separate books and records for the Oncor Ring-Fenced Entities; Oncor’s board of directors being comprised of a majority of independent directors; and prohibitions on the Oncor Ring-Fenced Entities providing credit support to, or receiving credit support from, any member of the Texas Holdings Group.  The assets and liabilities of the Oncor Ring-Fenced Entities are separate and distinct from those of the Texas Holdings Group, including TXU Energy and Luminant, and none of the assets of the Oncor Ring-Fenced Entities are available to satisfy the debt or contractual obligations of any member of the Texas Holdings Group.  Oncor does not bear any liability for debt or contractual obligations of the Texas Holdings Group, and vice versa.  Accordingly, Oncor’s operations are conducted, and its cash flows are managed, independently from the Texas Holdings Group.



On April 29, 2014, EFH Corp. and the substantial majority of its direct and indirect subsidiaries that are members of the Texas Holdings Group, including EFIH, EFCH and TCEH, commenced proceedings under Chapter 11 of the US Bankruptcy Code.  The Oncor Ring-Fenced Entities are not parties to the EFH Bankruptcy Proceedings.  We believe the “ring-fencing” measures discussed above mitigate Oncor’s exposure to the EFH Bankruptcy Proceedings.  In addition, we do not expect the EFH Bankruptcy Proceedings to have a material impact on our reported results of operations, financial condition or liquidity.   In May 2014, the bankruptcy court in the EFH Bankruptcy Proceedings entered an order authorizing payment of the transition charges by Oncor’s affiliated REPs.  Those affected REPs also previously posted security for our benefit.



---

 

Basis of Presentation



These unaudited condensed financial statements should be read in conjunction with the audited financial statements and related notes included in the 2015 Form 10-K.  In the opinion of Bondco management, all adjustments (consisting of normal recurring accruals) necessary for a fair presentation of the results of operations and financial position have been included therein.  All intercompany items and transactions have been eliminated in consolidation.  The results of operations for an interim period may not give a true indication of results for a full year due to seasonality. 



Use of Estimates



The preparation of our financial statements requires management to make estimates and assumptions about future events that affect the reporting and disclosure of assets and liabilities at the balance sheet dates and the reported amounts of revenues and expenses, including fair value measurements of debt at the period end and unbilled revenue estimates.  In the event estimates and/or assumptions prove to be different from actual amounts, adjustments are made in subsequent periods to reflect more current information.  No material adjustments were made to previous estimates or assumptions during the current year.



Over/(Under) Recovery of Transition Charges



Variations in customer usage impact transition charge revenues.  We account for the difference between transition charge revenues and the total of interest expense, amortization of the transition property and other fees and expenses as an over- or under-recovery of transition charges.  To the extent revenues exceed expenses, we record an increase to expense with a corresponding increase to a regulatory liability.  To the extent revenues are less than expenses, we record a decrease to expense with a corresponding decrease to the regulatory liability.



Final True-Up Adjustment



The remaining 2004 Bonds mature in May 2016 and the related revenue and expenses are expected to cease upon recovery of the debt service costs in the second quarter of 2016.  Any over/(under) recovery of transition charges existing after the retirement of the 2004 Bonds will be transferred to Oncor for final true-up proceedings conducted by Oncor and the PUCT with minimal or no net income impact expected at Bondco.



Amortization



The transition property acquired from Oncor, which totaled $1.290 billion at acquisition date, is amortized over the life of the Transition Bonds in an amount equal to the scheduled principal payments of the original debt amounts.  The transition property is scheduled to be fully amortized by May 2016 to coincide with the final Transition Bond payment scheduled to be made in May 2016. 



2.RELATED–PARTY TRANSACTIONS



Pursuant to administration and servicing agreements between us and Oncor, Oncor furnishes to us, at a fixed fee per year, billing, payment processing, collection, accounting and other administrative services, which are reflected as administrative and general expenses in our income statement.  Our expenses for servicing and administration activities performed by Oncor totaled approximately $128,000 and $206,000 for the three months ended March 31, 2016 and 2015, respectively.  



Transition charges billed to the REP subsidiaries of TCEH, which are included in operating revenues, totaled $5,353,000 and $9,142,000 for the three months ended March 31, 2016 and 2015, respectively.  The balance of the transition charge receivable due from the REP subsidiaries of TCEH totaled $3,536,000 and $3,823,000 at March 31, 2016 and December 31, 2015, respectively.    



Oncor, as servicer of the Transition Bonds, collects transition charge receivables and any required security deposits from REPs and remits these amounts to the Indenture Trustee as they are collected.  No amounts were outstanding from Oncor at March 31, 2016 and December 31, 2015.  As of March 31,  2016 and December 31, 2015,  

---

 

Oncor had remitted to the Indenture Trustee more than it collected in transition charge receivables and security deposits.  These amounts are reflected as “Accounts payable – affiliate” on our balance sheet.  Oncor reviews the security amount for the REPs quarterly and requests increases when required.  At March 31, 2016 and December 31, 2015, the Indenture Trustee held security in the amount of $6,038,000 and $6,143,000, respectively, for the REP subsidiaries of TCEH.



These related party transactions are expected to cease after the maturity of the remaining 2004 Bonds in May 2016.



Also see discussion in Note 4 regarding cash distributions.



3.FINANCING ARRANGEMENTS



Long-Term Debt



At March 31, 2016 and December 31, 2015, our long-term debt (Transition Bonds) consisted of the following:







The transition property sold to us, as well as restricted cash of $6,349,000 in the capital subaccount at March 31, 2016 and December 31, 2015, is pledged as collateral for the Transition Bonds.  Collections of transition charges are used to pay the principal, interest and associated costs of the Transition Bonds.  We are required to maintain restricted cash pledged as collateral for the Transition Bonds in an amount equal to 0.50% of the initial aggregate principal amount of Transition Bonds outstanding.  Should the transition charges collected through the specified payment dates listed above not provide adequate funds to make the scheduled payments of principal, the transition charges can continue to be collected for approximately two years before the Transition Bonds go into default for nonpayment of principal.



The fair value of the outstanding Transition Bonds was approximately $41,331,000 and $41,293,000 at March 31, 2016 and December 31, 2015, respectively.  The fair value is estimated using observable market data, representing Level 2 valuations under accounting standards related to the determination of fair value.



Covenants



The terms of the Indenture contain various covenants, including payment covenants, covenants to file certain information with the SEC and covenants to deliver certain information to the Indenture Trustee.  At March 31, 2016 and December 31, 2015, we were in compliance with these covenants.



4.MEMBER’S INTEREST



Cash distributions to Oncor related to its member’s interest totaled zero for each of the three-month periods ended March 31, 2016 and 2015.    

---

 



5.RESTRICTED CASH



Restricted cash amounts reported on our balance sheet consisted of the following:





















---

 

Item 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND



RESULTS OF OPERATIONS



The following discussion and analysis of our financial condition and results of operations for the three months ended March 31, 2016 and 2015 should be read in conjunction with our condensed financial statements and the notes to those statements.



The information required hereunder is in its reduced format as allowed for under General Instruction (H) (1) of Form 10-Q.  All dollar amounts in the following tables and discussion and analysis are stated in US dollars unless otherwise indicated.



BUSINESS



We are a bankruptcy-remote, special-purpose Delaware limited liability company, wholly-owned by Oncor.  Oncor is a regulated electricity transmission and distribution company principally engaged in providing delivery services to REPs, including subsidiaries of TCEH, that sell power in the north-central, eastern and western parts of Texas.  Oncor is a direct, majority-owned (approximately 80%) subsidiary of Oncor Holdings, which is a direct, wholly-owned subsidiary of EFIH, a direct, wholly-owned subsidiary of EFH Corp.  See Note 1 to Financial Statements for discussion of certain “ring-fencing” measures taken by EFH Corp. and Oncor to enhance the separateness between the Oncor Ring-Fenced Entities and the Texas Holdings Group and Oncor’s credit quality.



We were organized for the limited purposes of purchasing and owning transition property and issuing Transition Bonds to recover generation-related regulatory assets and other qualified costs.  During 2015, the 2003 Bonds matured and were paid in full while the remaining 2004 Bonds mature in May 2016.  As such, it is anticipated that the transition property and related debt service costs will be fully recovered in the second quarter of 2016, which will complete the business purpose of Bondco.  We anticipate the dissolution of Bondco at some point thereafter.  Final true-up proceedings for the Transition Bonds are expected to be conducted by Oncor and the PUCT during 2016.



We are structured and operated in a manner such that in the event of bankruptcy proceedings against Oncor, our assets would not be consolidated into the bankruptcy estate of Oncor.  Oncor is not the owner of the transition property described herein, and our assets are not available to pay creditors of Oncor or any of its affiliates.



On April 29, 2014, EFH Corp. and the substantial majority of its direct and indirect subsidiaries that are members of the Texas Holdings Group, including EFIH, EFCH and TCEH, commenced proceedings under Chapter 11 of the US Bankruptcy Code.  The Oncor Ring-Fenced Entities are not parties to the EFH Bankruptcy Proceedings.  We believe the “ring-fencing” measures discussed above mitigate Oncor’s exposure to the EFH Bankruptcy Proceedings.  In addition, we do not expect the EFH Bankruptcy Proceedings to have a material impact on our reported results of operations, financial condition or liquidity.  In May 2014, the bankruptcy court in the EFH Bankruptcy Proceedings entered an order authorizing payment of the transition charges by Oncor’s affiliated REPs.  Those affected REPs also previously posted security for our benefit.



RESULTS OF OPERATIONS — Three Months Ended March 31, 2016 Compared to Three Months Ended March 31, 2015



Our operations are restricted by our organizational documents to billing and collecting transition charges and using those funds to service the Transition Bonds.  Other than investment income on funds held by the Indenture Trustee, all revenues are restricted for servicing the Transition Bonds.  Therefore, the difference between transition charge revenue and the total of interest expense, amortization of the transition property (which is equal to the Transition Bonds’ scheduled principal payments) and other fees and expenses is accounted for as an over- or under-recovery of transition charges resulting in minimal net income.



Transition charge revenue necessary to service the Transition Bonds can be impacted by variations in electricity volumes delivered by Oncor resulting in temporary over- or under-recovery of transition charges.  In such

---

 

instances where sufficient funds are not collected through transition charges, the over-collateralization and the capital subaccounts are drawn down on the payment date to make scheduled payments on the Transition Bonds. 



The 2003 Bonds matured and were paid in full in August 2015 while the remaining 2004 Bonds mature in May 2016.  Revenue and expenses are expected to cease upon recovery of the debt service costs in the second quarter of 2016.  Final true-up proceedings for any over/(under) recovery related to the Transition Bonds are expected to be conducted by Oncor and the PUCT during 2016 with Bondco expected to continue to have minimal or no net income.



Transition charge revenue decreased 40% for the three months ended March 31, 2016 primarily reflecting the discontinuation of billing during the period for the 2003 Bonds, which matured and were paid in full in August 2015 and changes in transition charge tariff rates as a result of annual true-up adjustments.  



Interest expense decreased 75% for the three months ended March 31, 2016 reflecting lower average debt balances due to scheduled principal payments on the Transition Bonds, including retirement of the 2003 Bonds.



Amortization of transition property decreased 38% for the three months ended March 31, 2016 reflecting principal payments on Transition Bonds, including retirement of the 2003 Bonds.



Fluctuations in the over/(under) recovery of transition charges primarily result from variances in revenues from the revenue forecast used to set the transition charges.  See discussion under “Over/(Under) Recovery of Transition Charges” in Note 1 to Financial Statements.



Net income was zero for each of the three-month periods ended March 31, 2016 and 2015.  Other than investment income on funds held by the Indenture Trustee, all revenues are restricted for servicing the Transition Bonds.  Therefore, the difference between transition charge revenue and the total of interest expense, amortization of the transition property (which is equal to the Transition Bonds’ scheduled principal payments) and other fees and expenses is accounted for as an over- or under-recovery of transition charges resulting in minimal net income.



FINANCIAL CONDITION —  Three Months Ended March 31, 2016 Compared to Three Months Ended March 31, 2015



Cash Flows —  Cash provided by operating activities decreased $10,132,000, or 32%, for the three months ended March 31, 2016.  The change was driven by an  $11,983,000 decrease in collections from REPs primarily due to the maturity and payment in full of the 2003 Bonds in August 2015, a $119,000 decrease in customer deposits received and a  $178,000 decrease in accounts payable to affiliate.  These decreases in cash were partially offset by a $1,474,000 decrease in cash interest payments as a result of the retirement of the 2003 Bonds.   



Cash used in financing activities was zero for the three months ended March 31, 2016 due to the retirement of the 2003 Bonds in August 2015.   



Cash used in investing activities totaled $21,568,000 for the three months ended March 31, 2016 and cash used in investing activities totaled $2,087,000 for the three months ended March 31,  2015.  These amounts represent changes in the balances of restricted cash accounts driven by changes in cash deposited and debt service payments.  See Note 5 to Financial Statements for additional information regarding restricted cash.



Oncor, as servicer of the Transition Bonds, files for increases or decreases (true-ups) in transition charges with the PUCT to ensure sufficient funds will be collected during the following period to meet scheduled payments on the Transition Bonds and to maintain the capital and over-collateralization subaccounts at the required levels.  The latest filing of the annual true-up for the 2004 Bonds was in May 2015.  Based on the approved transition charges and current forecast of customer usage, we expect that revenues collected will be sufficient to make the scheduled May 2016 payment on the 2004 Bonds.



At March 31, 2016, restricted cash included the balance in the capital subaccount totaling $6,349,000 for the 2004 Bonds, which is above the required level under the Indenture of $3,949,000.  Additionally, at March 31, 2016, the balance in the over-collateralization subaccount for the 2004 Bonds totaled $1,891,000, which is below the

---

 

required level of $3,784,000.  Required levels are determined at the respective scheduled payment dates.  Required level amounts reported above are as of the most recent payment dates.  There are no penalties as a result of being above or below the required levels in the capital and over-collateralization subaccounts. 



FINANCING ACTIVITIES



Our financing activities are limited to issuance of the Transition Bonds.  There is no provision to allow for any other borrowings.     



Covenants and Cross Default Provisions — The terms of the Indenture contain various covenants, including payment covenants, covenants to file certain information with the SEC and covenants to deliver certain information to the Indenture Trustee.  At March 31, 2016, we were in compliance with these covenants.



Certain financing arrangements contain provisions that may result in an event of default if there were a failure under other financing arrangements to meet payment terms or to observe other covenants that could or do result in an acceleration of payments due.  Such provisions are referred to as “cross default” provisions.  The Indenture does not contain any cross default provisions in respect of any indebtedness of Oncor.



FORWARD-LOOKING STATEMENTS



This report and other presentations made by us contain “forward-looking statements.”  All statements, other than statements of historical facts, that are included in this report, or made in presentations, in response to questions or otherwise, that address activities, events or developments that we expect or anticipate to occur in the future (often, but not always, through the use of words or phrases such as “intends,” “plans,” “will likely result,” “are expected to,” “will continue,” “is anticipated,” “estimated,” “should,” “projection,” “target,” “goal,” “objective” and “outlook”), are forward-looking statements.  Although we believe that in making any such forward-looking statement our expectations are based on reasonable assumptions, any such forward-looking statement involves uncertainties and is qualified in its entirety by reference to the discussion of risk factors under “Item 1A. Risk Factors” and the discussion under “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations" in our 2015 Form 10-K and “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this report and the following important factors, among others, that could cause our actual results to differ materially from those projected in such forward-looking statements:





Any forward-looking statement speaks only at the date on which it is made, and, except as may be required by law, we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which it is made or to reflect the occurrence of unanticipated events.  New factors emerge from time to time, and it is not possible for us to predict all of them; nor can we assess the impact of each such factor or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statement.

---

 



Item 4.  CONTROLS AND PROCEDURES



An evaluation was performed under the supervision and with the participation of management, including the principal executive officer and principal financial officer, of the effectiveness of the design and operation of the disclosure controls and procedures in effect at the end of the current period included in this report.  Based on the evaluation performed, management, including the principal executive officer and principal financial officer, concluded that the disclosure controls and procedures were effective.  During the most recent fiscal quarter covered by this report, no changes in internal controls over financial reporting have occurred that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.



---

 

PART II.  OTHER INFORMATION



REQUIRED REPORTS



We have included in this quarterly report on Form 10-Q or furnished on Oncor’s website at www.oncor.com, as indicated, the following information in respect of each series of outstanding Transition Bonds, as required by the terms of the Indenture relating to the Transition Bonds.  Exhibits that are filed as a part of this Form 10-Q are listed in Item 6.







---

 

Item 1A.RISK FACTORS



We believe that there have been no material changes to the risks disclosed in the 2015 Form 10-K, including under the heading "Risk Factors" in “Item 1A” of our 2015 Form 10-K, except for information disclosed elsewhere in this Form 10-Q that provides factual updates to risks contained in our 2015 Form 10-K.  The risks disclosed in our 2015 Form 10-K are not the only risks we face.   



Item 6.EXHIBITS



---

 

SIGNATURE





Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.







ONCOR ELECTRIC DELIVERY TRANSITION BOND COMPANY LLC















Date:  May 4, 2016

---

 

EXHIBIT INDEX







---