Allegheny Energy Inc. said yesterday that a drop in value of its trading contracts and weak financial performance this year have caused its equity level to fall below requirements set by federal regulators.
As a result, Allegheny said, it must seek permission from the Securities and Exchange Commission to pursue additional financing needed to improve its liquidity.
Allegheny is selling assets to pay off debts, and the Hagerstown company has said it might issue new securities to raise cash.
The utility needs the money to make payments on $2.4 billion in loans it negotiated this year to save it from bankruptcy.
In disclosing yesterday that its equity-to-total-capitalization ratio has fallen below 28 percent - a threshold set for the company by the SEC in October - Allegheny officials said they wanted to warn investors and Wall Street of the company's difficult financial situation.
"There can be no assurance ... that the Company ... . will achieve timely asset sales or financing to assure its on-going liquidity," Allegheny said in a statement released yesterday.
"Seeking protection under the bankruptcy laws" is a distinct possibility if it cannot improve its liquidity, the statement said.
The announcement was made after the close of trading on the New York Stock Exchange, where the company's stock is listed. Allegheny Energy closed at $9.31 a share, down 31 cents for the day.
The company has not released a financial report since the second quarter of last year.
A comprehensive internal review of Allegheny's finances, which has not been completed, is expected show that earnings and cash flow will be "substantially below" earlier projections for this year and next, the company has warned.
"If we don't get SEC approval, it could be a setback for us," said Cynthia A. Shoop, vice president of corporate communications for Allegheny. "We are making progress in the sale of assets, but we are exploring other options, too. We are working very hard toward our recovery, but there are challenges along the way, and this is one of them.
"Unless we can get the SEC to modify our debt-to-capital ratio, it basically means that we have very limited flexibility to meet the liquidity requirements we need to move forward."
Allegheny has been struggling since fall, when its debt ballooned to more than $5 billion, several subsidiaries defaulted on their credit agreements and the utility's credit ratings were cut to below investment grade.
Allegheny barely avoided bankruptcy in February by securing a $2.4 billion refinancing deal with its lenders. A short time later, it won shareholder approval of a plan to raise cash by selling stock privately.
Now, the company will be forced to obtain additional SEC permission to issue such securities, Shoop said.
Allegheny is also preparing other applications to submit to the SEC that would allow it to pursue other methods of financing and other activities, the company said in a statement.
Governed by the Public Utility Holding Company Act of 1935, Allegheny must seek authorization to pursue borrowing, Shoop said. The SEC usually does not allow utilities governed by the act to drop below a 30 percent equity-to-total-capitalization ratio, but Allegheny received regulatory permission to lower the ratio to 28 percent.
Allegheny recently hired Paul J. Evanson, former president of Florida Power & Light Co., to lead the troubled utility out of its financial woes.
He has continued to pursue the sale of major company assets, including its interest in the Conemaugh Generating Facility in Johnstown, Pa.
Allegheny recently settled a dispute with the California Department of Water Resources, freeing it to sell its 10-year, multibillion-dollar power-supply contract with that state.