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Allegheny to reduce dividends

October 10, 2002|by SCOTT BUTKI

scottb@herald-mail.com

Allegheny Energy, in a filing with the Securities and Exchange Commission on Wednesday, said it plans to reduce or eliminate dividends paid to shareholders through at least the fourth quarter of 2003.

The utility holding company also filed for approval for its Allegheny Energy Supply Co. unit to provide collateral to support additional borrowings of up to $2 billion on a secured basis.

The filings came as two more rating agencies downgraded the debt ratings of Hagerstown-based Allegheny Energy to junk status.

Allegheny spokeswoman Cynthia Shoop said the news that Standard & Poor's and Fitch Ratings both cut their debt ratings on the company to junk status did not come as a surprise following Moody's Investors Service's downgrade of the company's rating to junk status last week.

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On Tuesday, Allegheny said it was in default on credit agreements with some of its trading partners.

Allegheny also said Tuesday it expects 2002 and 2003 earnings to fall short of its previous guidance of $2.50 to $2.70 a share, due to the continuing deterioration in U.S. wholesale energy markets.

Wednesday's filing with the SEC is part of the company's ongoing effort to obtain the liquidity necessary to cure default conditions and to resume posting collateral to trading counterparties.

Shoop said Allegheny has not determined what the future dividend level will be.

In the SEC filing, the company said it intends to reduce dividends to between 0 percent and 50 percent of the current dividend level in December and in 2003.

"No determination has been made by the board of directors as to the actual future dividend level within this range," according to the SEC filing.

The Allegheny Energy board of directors decides each quarter whether to pay dividends to shareholders, Shoop said. Historically, the dividend amount has been 43 cents per share, she said.

According to the company's annual report, Allegheny had 37,644 shareholders as of Dec. 31, 2001, a spokesman said.

While the board is not scheduled to have a regular meeting until December, it could opt to meet earlier to decide the status of the dividend, Shoop said.

Reducing the dividend amount would free up some cash, which the company can invest back into the business, Shoop said.

Shoop said the company's energy trading partners have asked for more collateral from Allegheny based on a credit downgrade and the financial risk to the trading partner.

While the company has told some of the partners it will not provide the collateral, it is paying extra collateral to a few unnamed counterparties, Shoop said.

"We are engaged in active discussions with our banks regarding our position and are working to obtain additional liquidity as quickly as is possible," Alan J. Noia, Allegheny Energy chairman, president and chief executive officer, said in a prepared release.

Allegheny's New York Stock Exchange-listed shares closed at $4.05 Wednesday, up from the $3.80 level at the close of the market Tuesday.

The stock hit a 52-week high of $43.86 on April 23 and a 52-week low of $3.25 on Tuesday.

A Thomson First Call survey of 13 analysts produced a mean earnings estimate of $2.28 a share for 2002 and $2.19 a share for 2003.

Allegheny's resources have been drained by the collapse of wholesale energy markets and losses on hedges put in place to support California power contracts. Goldman Sachs analyst John Raleigh estimates the company has an operating cash deficit of about $300 million and debt maturities of $250 million for 2002.

Allegheny has said it is taking "aggressive" action to preserve cash and shore up its balance sheet, but doesn't expect marked improvement in wholesale energy markets before 2004.

Allegheny's utility division provides electricity and natural gas to about 1.7 million customers in Maryland, Ohio, Pennsylvania, Virginia and West Virginia.

The Associated Press contributed to this story.

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