Allegheny seeks SEC's approval for division to borrow $2 billion

Md. utility might halve or eliminate its dividend

October 10, 2002|By Dan Thanh Dang | Dan Thanh Dang,SUN STAFF

One day after announcing that it had defaulted on major credit agreements, cash-strapped Allegheny Energy Inc. filed an application with the U.S. Securities and Exchange Commission yesterday seeking approval for a subsidiary to borrow up to $2 billion.

Allegheny also said in the filing that it could eliminate its dividend or cut it in half to bolster its cash flow. Allegheny pays shareholders 43 cents a share every quarter, or $1.72 per share each year.

Last week, Moody's Investors Services downgraded the struggling Hagerstown energy company's credit rating to below investment grade because of continuing liquidity problems and a weakened wholesale energy market.

Since then, Allegheny's financial crisis has worsened. Besides the credit defaults, its stock has been trading for less than $5 a share this week, and the company warned Tuesday that it would lower earnings expectations for this year and next year.

"We are engaged in active discussions with our banks regarding our position and are working to obtain additional liquidity as quickly as possible," Alan J. Noia, Allegheny's chairman, president and chief executive, said in a statement.

In the SEC filing, the company said it could eliminate the dividend or cut it 50 percent, at least through the fourth quarter of next year. The board of directors has not determined a figure for the dividend yet, the filing said, adding, "This commitment will result in significant cash savings each quarter."

Shares of Allegheny rose 25 cents yesterday to close at $4.05 on the New York Stock Exchange.

As part of its request, Allegheny is seeking permission for its subsidiary, Allegheny Energy Supply Co. LLC, to provide its assets as collateral for up to $2 billion in secured borrowings.

Also, to increase liquidity, AE Supply has offered for sale some of its generation assets. The company did not say which ones. In addition, the filing said AE Supply is working with California to settle issues over its $4.5 billion contract to supply the state with electricity.

Allegheny said the request is part of its continuing effort to obtain the liquidity necessary to cure default conditions and to resume posting collateral with other trading firms.

The company has moved to improve its balance sheet by trimming its work force, reducing capital spending by about $700 million over the next several years and reducing its reliance on wholesale energy trading. Allegheny is also looking at issuing equity in the fourth quarter this year to improve liquidity.

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