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Allegheny workers told facility may be sold

July 19, 2003|by SCOTT BUTKI

scottb@herald-mail.com

Allegheny Energy Inc. has sent an internal communication to its employees telling them that real estate consultants will be touring property at the Hagerstown corporate headquarters because it may be put up for sale.

On Thursday and Friday, spokeswomen for the Hagerstown-based utility company declined to comment on the e-mail sent to employees or on whether the headquarters on Downsville Pike may be put up for sale.

Several current and former employees, who requested anonymity, confirmed the validity of the e-mail.

The e-mail stated, in part: "While no decisions have been made on the sale of this property, this is another option that we must consider in order to improve our financial performance. If a decision is made to sell the property, our plan at this time would be to lease back this facility for our continued future use, as we have done in the past with other properties."

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The company previously said it is trying to sell assets to deal with ongoing financial difficulty.

Several officials have left the company since the beginning of the year, and industry analysts have commented unfavorably on the company's financial status.

The company reported losses of $334.4 million in the first three quarters of 2002, and on Thursday sought federal government approval to borrow $2.2 billion to help stave off possible bankruptcy.

In 1996, the company moved its headquarters from New York to the former location of The Potomac Edison Co. headquarters on Downsville Pike.

When the company announced the move in 1995, Alan J. Noia, then-president and chief operating officer, said: "Hagerstown is very well located between the places that we serve."

Then-Maryland House Speaker Casper Taylor Jr. said part of the lure was a promise to try to get a new interchange at Interstate 70 and Downsville Pike, which since has been built.

The headquarters adjoins the company's 400-acre Friendship Technology Park.

In April, Noia retired following months of company problems that included the downgrading of its debt rating.

Michael P. Morrell, the president of Allegheny Energy's energy trading company - a subsidiary responsible for the bulk of the company's recent financial losses - stepped down in May.

On Thursday, the company filed a request with the U.S. Securities and Exchange Commission for permission to borrow $2.2 billion in secured and unsecured loans, saying denial of the request could result in bankruptcy. The filing also asks the SEC for permission to issue up to $325 million in convertible trust preferred securities, which can be converted to shares of common stock based on certain conditions, spokeswoman Debbie Beck said.

On June 23, the company said its common equity ratio had fallen below 28 percent, the level required under the Public Utility Holding Company Act of 1935. 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, company officials said.

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

In the last year, 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.

Moody's Investors Services on July 2 further downgraded Allegheny Energy's stock rating from B1 to B2. At the same time, Allegheny Energy Supply, its energy trading subsidiary, was downgraded from B1 to B3, according to an SEC filing.

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, which was incorporated in Maryland in 1925, has about 1.6 million electricity customers and 230,000 natural gas customers in Maryland, Ohio, Pennsylvania, Virginia and West Virginia.

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