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Allegheny close to refinancing $1.6 billion debt

February 18, 2004|by JULIE E. GREENE

julieg@herald-mail.com

Allegheny Energy is close to completing a $1.6 billion refinancing deal that prompted Standard & Poor's to issue a stable outlook for the utility's credit ratings on Tuesday, an S&P analyst said.

"I think it's a milestone, an important milestone. That means they made it through some of the most difficult issues," said Tobias Hsieh, director of S&P's Utility, Energy and Project Finance Group in New York City.

The credit rating agency did not upgrade the B rating for Allegheny Energy because the company still has too much debt, Hsieh said.

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Allegheny Energy spokesman Allen Staggers said the refinancing deal isn't done yet, though refinancing is a high priority for the company, which has its headquarters southwest of Hagerstown.

"It's kind of like a lot of complex financial situations. It's an ongoing process. Until it's done, it really wouldn't be appropriate to comment on how far done it is," Staggers said.

When negotiating a finance deal, the terms and conditions can change daily, he said.

Allegheny officials announced on Feb. 4 that the company had received permission from the U.S. Securities and Exchange Commission to issue up to $1.6 billion of indebtedness to refinance existing debt, according to Staggers and a company news release. At that time, the company issued a statement saying company officials weren't sure they'd be able to secure the refinancing on satisfactory terms.

According to Hsieh, the pending deal calls for refinancing $300 million in debt for Allegheny Energy and $1.3 billion in debt for its energy supply subsidiary, Allegheny Energy Supply Company.

While most of the utility's debt is due to be paid in 2005 under the current deal, under the pending deal the loan would expire in 2011, Hsieh said.

Allegheny still has a lot of recovering to do, Hsieh said.

In February 2003, Allegheny Energy announced a $2.4 billion refinancing deal that helped the company avoid filing for bankruptcy.

Under that deal, the utility had until April 18, 2005, to pay back $1.6 billion or the bulk of the loans, according to the loan summaries.

Allegheny's financial troubles began about four years ago when the company bought power plants outside its traditional service area and bought Merrill Lynch's energy trading unit in an attempt to expand the company by becoming a player in the national energy trading market, energy analysts have said.

Those decisions, which seemed to be good ideas at the time, backfired when the economy took a downturn in 2001 and the company became saddled with debt it couldn't afford.

To improve the company's financial performance, the management team reduced the work force by more than 600 workers in the summer of 2002 and secured the $2.4 billion financing deal.

Last year the company replaced much of its management team.

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