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Allegheny stocks fall

February 27, 2003|by TAMELA BAKER

tammyb@herald-mail.com

Allegheny Energy Inc.'s $2.4 billion financing deal was good news for company officials, but it couldn't stave off a stock slide prompted Wednesday by "conservative" earnings projections for 2003 and 2004.

Allegheny's stock prices plunged from $8.20 per share at closing Tuesday to $5.55 when the market closed Wednesday, a loss of more than 32 percent.

Allegheny announced Tuesday that the utility and its energy trading subsidiary, Allegheny Energy Supply Co., had negotiated $2.437 billion in secured and unsecured loans, to be repaid through 2007. The announcement came after months of credit deadline extensions. Company officials also had threatened to file for bankruptcy.

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Chief Financial Officer Bruce Walenczyk told investors during a Webcast conference Wednesday that the "transaction enables us to restructure certain debt obligations" and raise cash gradually.

Allegheny's earnings forecast of $1 per share for 2003 and 96 cents a share for 2004 fell short of Wall Street expectations. Walenczyk said the earnings projections reflected the cost of interest on the company's debt.

"The interest expense is the biggest item" contributing to the low forecast, he said.

Alan J. Noia, Allegheny Energy chairman, president and chief executive officer, said "the numbers in the projections are not meant to be used as guidance." The utility has been "operating for quite some time in a very abnormal environment. I would not say recent operations have been any place close to normal."

The financing package was intended to move the utility back on its normal financial footing, Noia said.

The Enron collapse left a number of energy trading companies reeling, including Allegheny Energy. This past October, Moody's Investors Services downgraded Allegheny's debt rating to "junk bond" status because of the company's declining cash flow and earnings.

"Basically, the roof caved in on us," Noia told investors during the conference. But as the company conserves cash and raises more, Noia said "we hope to see those credit ratings turned around."

Allegheny also is shopping a number of its assets.

Allegheny Energy Supply officials announced Wednesday they sold Allegheny's share of the coal-fired Conemaugh Generating Station near Johnstown, Pa., to UGI Development Co. for approximately $51.25 million.

Asked by an analyst during the Webcast whether the company as a whole was for sale, Noia said "we don't speculate on those kinds of things. But you will see more consolidation in the industry."

For now, however, Noia said potential buyers of utilities are "worried about credit. Once people get their credit house in order," utilities will be in a better position to consolidate, he said.

Noia said that with the sale of Conemaugh, Allegheny had "a running start on asset sales. Everything is on the table. We don't wanna just squeak by" in raising cash to make loan payments.

"I feel very confident that we will have a lot of liquidity by the end of the year," Noia said. "We know what we have to do to make the amortization payments."

Walenczyk said he did not know when 2002 earnings would be released. He said more errors had been found in Allegheny's financial statements, and the utility may have to restate earnings in unaudited financial statements it released for the first and second quarters of 2002.

"It's a very complicated and time-consuming process" to correct the errors, he said. "It's difficult to predict what the timeline is gonna be."

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