Following through on its five-week-old warning, Columbia Gas System Inc. filed for bankruptcy protection yesterday, saying the company was running out of cash because creditors and suppliers had failed to ease their terms.
The Wilmington, Del.-based supplier of natural gas to 15 states, including Maryland, said customers would continue to receive natural gas although Columbia will suspend its debt payments and seek to cancel its gas-purchasing contracts.
In fact, gas customers will likely benefit from lower prices in the long run if Columbia escapes its high, fixed-price, gas-purchasing deals, said company Chairman John H. Croom.
Last month, the company said spot market prices of natural gas had fallen so far below prices Columbia had agreed to pay gas suppliers that the firm would lose $1 billion over the next 10 years.
Mr. Croom said the parent company and one of its 18 subsidiaries filed separate petitions for Chapter 11 protection in U.S. Bankruptcy Court in Wilmington, Del., yesterday.
He said the bankrupt gas-transmission subsidiary, which holds the expensive contracts, would only buy gas on the spot market in the future. Natural gas was selling for about $1.30 a thousand cubic feet on the spot market yesterday. Columbia has said that some of its contracts call for payments of up to $6.70 per thousand cubic feet.
The parent company sought Chapter 11 protection to conserve cash, he said.
"We were literally running out of cash; at some point, we would not have been able to make payroll," Mr. Croom said, explaining that Columbia's attempts to persuade bankers to reopen its credit lines were not successful by the company's self-imposed deadline of July 31.
Mr. Croom said Columbia was hoping to get about $300 million to tide the parent and subsidiary over negotiations with thousands of gas suppliers and into the money-making, winter-heating season.
Columbia was supposed to have made a $33 million interest payment on long-term debt today .
Michael J. Conelius, a fixed-income credit analyst for Baltimore's T. Rowe Price & Assoc., said his company hopes Columbia will repay its debts, including the small amount Price is owed.
Though his company was not among those due interest today, Mr. Conelius said Price and other holders of Columbia's debentures will be the first creditors repaid.
Yesterday, after the filing, Columbia's stock was the single most active issue on the New York Stock exchange. It fell $3 and closed at $14.