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Allegheny's finances get a boost

February 26, 2003|by JULIE E. GREENE

julieg@herald-mail.com

HAGERSTOWN - After months of extending credit deadlines and threatening to file bankruptcy, Allegheny Energy Inc. officials announced a $2.4 billion financing deal Tuesday.

"I think it's very positive news for the company," Allegheny Energy spokeswoman Cynthia Shoop said. The loans give Allegheny officials "the time we need to get the financial side of our house in order," she said.

Allegheny Energy and its energy trading subsidiary, Allegheny Energy Supply Co., negotiated $2.437 billion in secured and unsecured loans, according to loan summaries released by Allegheny Energy.

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Trading action for Allegheny Energy's stock was halted one minute before the close of the market Tuesday as news of the financing deal was about to be announced.

Allegheny Energy (NYSE: AYE) closed at $8.20 per share, up 44 cents for the day.

Most of the $2.4 billion will be used to refinance other loans and $470 million will be used by Allegheny Energy Supply for general corporate purposes, according to the loan summaries.

Allegheny Energy and Allegheny Energy Supply have until April 18, 2005, to pay back $1.6 billion, which is the bulk of the loans, according to the loan summaries.

Shoop said company officials are exploring other options to raise money and help pay off the loans.

Those options include selling assets and asking shareholders to vote to allow Allegheny to sell part or all of the company.

"We feel comfortable that we can move forward successfully," Shoop said.

In negotiating the loans with a syndicate of banks, Allegheny officials had to provide financial projections, Shoop said. Consolidated net income for Allegheny and Allegheny Energy Supply was estimated to be $131 million in 2003 and $125 million in 2004, according to the projections filed with the Securities and Exchange Commission.

Shoop said she assumed revenues from energy supply contracts with the state of California were included in those projections.

Allegheny Energy Supply is awaiting a ruling from the Federal Energy Regulatory Commission as to whether the FERC will uphold or void those two contracts. The California Department of Water Resources (CDWR) is trying to get the contracts voided or restructured because energy prices were much higher when the contracts were signed in March 2001 during an energy crisis. A ruling is expected next month.

The larger of the two contracts is an $1.3 billion asset for Allegheny Energy. When that contract was signed, the company said it would be worth $4.5 billion during its 11-year term, Allegheny Energy Supply spokeswoman Janice Lantz has said.

Shoop would not speculate on what the impact would be on Allegheny and its new financing deal if the FERC rules in California's favor.

"We still feel very strongly that we have a valid and binding contract with the CDWR and we're taking every action to uphold that contract," Shoop said.

Shoop said she was sure Allegheny officials reviewed every possible scenario when negotiating the financing deal.

The financial status of Allegheny Energy and several other companies in the energy trading business has been ailing in the wake of the Enron collapse. In addition to troubles in the energy trading market, Allegheny experienced a disappointing first quarter in 2002 due to mild weather and lackluster trading during a poor economy last year.

Allegheny scaled back its energy trading operations, canceled development of some generating facilities and announced last July an offer of early retirement to approximately 600 of its 6,000 workers. About 650 employees chose to take early retirement, most by the end of 2003.

On Dec. 5, Allegheny officials announced the suspension of its quarterly dividend for shareholders of common stock for the first time in at least 54 years. That move was expected to save $54 million in the fourth quarter.

The dividend suspension will continue through the terms of the loans, Shoop said.

The latest loan term is Nov. 15, 2007, for $380 million of A-Note debt in the St. Joseph synthetic lease, according to the loan summaries. Allegheny suspended construction of the St. Joseph generating plant in Indiana in November.

Shoop said work on the plant could be suspended for two years. The partially completed plant could be sold to raise money, she said.

The first part of the loan due is $470 million due on Sept. 30, 2004, according to the loan summaries.

The utility and its subsidiary had received approval from the Securities and Exchange Commission to borrow up to $2 billion in secured financing.

Bank officials allowed Allegheny to get some funds that were unsecured, meaning Allegheny did not have to put up 100 percent collateral, Shoop said.

The leading lenders for the deal were J.P. Morgan, Citigroup and Scotia Capital, Shoop said. Approximately 20 other banks participated.

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