Item 1.01. Entry into a Material Definitive Agreement
On February 9, 2022 a newly formed Delaware statutory trust (the “Trust”), offered and sold $1 billion of pre-capitalized trust securities (“P-Caps”). The P-Caps will be mandatorily redeemable on January 31, 2027. The Trust invested the proceeds of the P-Caps in a portfolio of principal and/or interest strips of U.S. Treasury securities (and “Eligible Treasury Assets”) and entered into a facility agreement (the “Facility Agreement”) with Constellation Energy Generation, LLC (“Constellation”). References in this report to "we," "our," "us" and "the Company" are to Constellation.
Under the Facility Agreement, we have the right, from time to time, to issue to the Trust and to require the Trust to purchase from us, on one or more occasions (the “Issuance Right”), up to $1 billion aggregate principal amount of our 3.046% Senior Notes due 2027 (the “P-Caps Senior Notes”) in exchange for all or a portion of the Eligible Treasury Assets corresponding to the portion of the Issuance Right. We will pay a semi-annual facility fee to the Trust at a rate of 1.475%.
The P-Caps are to be redeemed by the Trust on January 31, 2027 or earlier upon optional redemption of the P-Caps Senior Notes by the Company. Any P-Caps Senior Notes outstanding and held by the Trust as a result of the exercise of the Issuance Right that remain outstanding will also mature on January 31, 2027.
The Issuance Right will be exercised automatically in full if (1) we fail to pay the facility fee when due or any amount due and owing under the Trust expense reimbursement agreement or we fail to purchase and pay for any Eligible Treasury Assets that are due and not paid on their payment date and such failure is not cured within 30 days, or (2) upon certain bankruptcy events of the Company.
We will be required to mandatorily exercise the Issuance Right if (1) our consolidated stockholders’ equity, determined in accordance with GAAP, but excluding accumulated other comprehensive income (or loss), equity of non-controlling interests attributable thereto and treasury stock at cost, has fallen below $2 billion, which amount may be adjusted from time to time upon the occurrence of certain specified events, (2) an event of default under the P-Caps Senior Notes indenture has occurred or would have occurred had the P-Caps Senior Notes been outstanding, (3) we breach our covenant to maintain sufficient capacity under other material agreements to permit the issuance of the P-Caps Senior Notes in full, (4) a Collateral Enforcement Event (as defined below) has occurred, (5) a change of control triggering event has occurred in respect of the Company or (6) certain events relating to the Trust’s status as an “investment company” under the Investment Company Act of 1940, as amended (the “Investment Company Act”), have occurred. Upon the occurrence of any event described in clause (1), (2), (3), or (6) of this paragraph, the Issuance Right will be exercised in full, and upon the occurrence of any event described in clause (4) or (5) of this paragraph, the Issuance Right will be exercised with respect to the applicable portion of the available amount of P-Caps Senior Notes specified in the Facility Agreement.
In connection with the issuance of the P-Caps, on February 9, 2022, we entered into a letter of credit facility agreement (the “LC Agreement”) with Deutsche Bank Trust Company Americas as collateral agent (the “Collateral Agent”) and administrative agent pursuant to which certain financial institutions (the “LC Issuers”) are permitted to join with commitments to provide letters of credit in an aggregate amount not to exceed $971 million to support the operations of the Company and its subsidiaries and minority investments. On February 11, 2022, five financial institutions joined the LC Agreement as issuers with an aggregate commitment of $971 million.
In addition, on February 9, 2022, the Trust entered into a pledge and control agreement (the “Pledge Agreement”), among the Company, the Trust and the Collateral Agent for the LC Issuers, under which the Trust agreed to grant a pledge over the Eligible Treasury Assets in favor of the Collateral Agent for the benefit of the LC Issuers. Pursuant to the LC Agreement and the Pledge Agreement, the Collateral Agent is entitled to withdraw Eligible Treasury Assets from the Trust’s pledged account, following notice to us, in the event we have failed to reimburse amounts drawn under any letter of credit issued pursuant to the LC Agreement, and the LC Issuers have the right to instruct the Collateral Agent to enforce the pledge over the Eligible Treasury Assets upon the occurrence of any event of default under the LC Agreement (a “Collateral Enforcement Event”).