Allegheny faces more money woes

June 24, 2003|by SCOTT BUTKI

Allegheny Energy Inc. said Monday it might be forced to consider bankruptcy protection as an option if the Securities and Exchange Commission doesn't grant the company permission to raise new capital, spokeswoman Cynthia Shoop said.

The Hagerstown-based company said its common equity ratio had fallen below 28 percent, the level required under the Public Utility Holding Company Act of 1935, Shoop said.

The ratio measures the equity portion of a company's total capital structure.

The company must get permission from the SEC before it can resume efforts to raise capital, Shoop said.

If permission is denied, the company's options for dealing with its current financial problems would be limited and one of those remaining options would be a bankruptcy filing, she said.


"If the company were unable to secure its liquidity position through the steps it is currently pursuing, it would be required to review other alternatives, including the possibility of seeking protection under the bankruptcy laws," the company said in a printed release.

Allegheny is hopeful the SEC will let it continue efforts to obtain new capital, Shoop said.

Either way, the company will continue to try to sell some of its assets, Shoop said.

"The company is in discussions with its senior bank lenders with respect to these regulatory issues, its performance in general and the sources or availability of additional liquidity and will pursue discussions regarding issues concerning covenant compliance," the company said in a written release.

Allegheny Energy said the common equity ratio change was the result of several factors, including the company determining its financial performance has been weaker than previously projected, a decline in the value of trading positions and write-downs related to project cancellations.

The company recently determined in connection with the preparation of its 2002 financial statements that the value of certain trading positions should be reduced as of Dec. 31, 2002, the release said.

Allegheny has not completed its comprehensive financial review, and therefore is not able to report financial results for the full year 2002 or the first quarter of 2003, the release said.

"Difficult market conditions and the effect of the Company's weakened credit profile have had a substantial adverse effect on operations during these periods," according to the release. Allegheny anticipates that its earnings and cash flow results, when reported, will be substantially below the levels set forth in the projections released in February, following completion of the company's bank refinancing, the release said.

One reason for Monday's announcement was that the company wanted to alert its investors and creditors about the potential problem, Shoop said.

There are no current plans for additional layoffs at the company, she said. She noted the company has reduced its work force by about 10 percent through early retirements.

That and other actions came after three agencies downgraded Allegheny Energy's debt rating to "junk bond" status last year.

Allegheny bought Global Energy Markets from Merrill Lynch for $490 million in March 2001. After Enron collapsed, so did the energy trading market.

Allegheny Energy's stock fell 31 cents to $9.31 a share Monday on the New York Stock Exchange.

Allegheny Energy has 1.5 million electricity customers and 230,000 natural gas customers in Maryland, Ohio, Pennsylvania, Virginia and West Virginia.

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