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Move strengthens Allegheny

July 26, 2003|by JULIE E. GREENE

julieg@herald-mail.com

Allegheny Energy Inc. officials announced Friday that the utility had taken a step toward improving its liquidity by securing $300 million through convertible trust preferred securities.

"This doesn't solve the liquidity crisis," said Craig Shere, an equity analyst with Standard & Poor's. "The liquidity crisis can be resolved to some extent if they sell their California contract and maybe their Midwest peakers."

Peakers are power plants.

Allegheny Energy noted in a July 17 filing with the U.S. Securities and Exchange Commission that company officials were negotiating to sell the California Department of Water Resources contract now that the two sides have settled a dispute over the contract's terms.

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"If they got a healthy price, that would be meaningful," Shere said.

In the SEC filing, Allegheny asked permission to continue accessing $2.2 billion in financing and to issue up to $325 million of convertible trust preferred securities.

Allegheny needed SEC permission because its common equity ratio had fallen below 28 percent, the level the SEC says must be maintained to access the funds.

SEC spokeswoman Carol Patterson would not say whether the commission granted either request because the commission does not comment on specific companies, she said.

Shere said the SEC presumably approved the request since Allegheny made the announcement Friday.

Allegheny Energy's stock rose 7 percent, or 53 cents per share, to close at $8.05 Friday.

Allegheny officials made the requests to the SEC because the utility and its energy trading subsidiary, Allegheny Energy Supply Co., "face a critical liquidity need," according to the July 17 SEC filing.

The utility will use the net proceeds from issuing the $300 million in convertible trust preferred securities to improve its liquidity and meet future collateral requirements for Allegheny Energy Supply, according to a company press release.

An Allegheny Energy spokesman could not be reached for comment Friday.

The trust preferred securities will mature on June 15, 2008, the company press release states. They can be converted to shares of Allegheny Energy common stock at a cost of $12 per share if the shareholder wants, the release states.

If Allegheny's share price reaches $15 for a specified period of time, the securities will mandatorily convert at $12 per share. The trust preferred securities can convert to up to 25 million shares of Allegheny Energy common stock, the release states.

Allegheny is aggressively trying to sell assets to improve its liquidity situation, but has significant payments to make this year on a $2.4 billion financing deal the company got in February that prevented it from filing bankruptcy.

Allegheny Energy Supply must pay $250 million toward that deal by Dec. 31, while Allegheny Energy must pay $8 million each financial quarter, according to the July 17 SEC filing.

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