Dynegy selling 16,600-mile pipeline to Buffett company for $1.88 billion

Analyst says cash infusion may help seller `survive'

July 30, 2002|By BLOOMBERG NEWS

HOUSTON - Dynegy Inc. agreed to sell a natural-gas pipeline for $1.88 billion in cash and assumed debt to MidAmerican Energy Holdings, a unit of Warren Buffett's Berkshire Hathaway Inc. that has been buying energy assets.

MidAmerican will pay $928 million in cash and assume $950 million in debt to acquire the 16,600-mile Northern Natural Gas pipeline system, which runs from Texas to the Great Lakes, the companies said.

Dynegy acquired Northern from Enron Corp. for $1.5 billion in cash and $950 million of assumed debt. It is selling assets after energy trading declined and credit dried up.

The purchase is the second this year for MidAmerican, which paid $960 million to Williams Cos. in March for the Kern River gas pipeline. Buffett is "picking them off one by one," said Allan J. Meyers, who manages $1 billion in the Fifth Third Large Cap Value Fund. "He's getting this on the cheap."

Shares of Dynegy, which had fallen 99 percent in the past year, spurted 52 cents, or 76 percent, to $1.20 on the New York Stock Exchange yesterday.

"This will cut Dynegy's cash flow and earnings, but right now, it's about survival for them," said Reed Wasden & Associates analyst Aaron Tyler, who rates Dynegy shares "hold" and owns none.

Northern Natural can deliver 4.3 billion cubic feet of gas a day and has links with other U.S. pipelines. MidAmerican is "getting some marvelous assets at great prices," Tyler said.

Dynegy is trying to raise $2 billion after the company's cash flow dwindled and its credit rating was cut to junk by Standard & Poor's. The Houston-based company canceled a $325 million bond offering by its Illinois utility last week.

Standard & Poor's said the sale wouldn't affect Dynegy's credit rating for now. The transaction "relieves some near-term liquidity issues," and raises concern about repayment of a $1.5 billion obligation to ChevronTexaco Corp., which owns about 27 percent of Dynegy, the rating agency said.

S&P put Northern Natural Gas debt on CreditWatch with positive implications, reflecting MidAmerican's higher credit rating.

"This could really pull Dynegy out of the fire," Tyler said. "They may be getting enough cash for them to survive the next year and a half."

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