Allegheny Energy ( AYE) has some serious unfinished business to address before it can close the books on its worst-ever year. The Maryland-based utility faces a year-end deadline to negotiate a critical refinancing package with its lenders. If successful, Allegheny should have enough money to carry it through a possible turnaround year. If not, the company could very well become the first major energy trader since Enron to seek Chapter 11 bankruptcy protection. Allegheny, which has bought time with two bank waivers already, remains cautiously optimistic. "Allegheny Energy and its subsidiaries are continuing discussions with their bank lenders -- and are optimistic that they will reach an agreement that provides the necessary liquidity and funding for both near- and long-term financial flexibility," the company told investors after being granted a second extension by its banks. Analysts tend to believe Allegheny's lenders will come through. But some bondholders, pointing to strict borrowing limits in an Allegheny bond indenture, are already crying foul. Shares of Allegheny rose 22 cents, or 3.1%, to $7.25 on Friday. The stock has lost roughly half its value over the past three months, and is down 80% for the year.
Take or Pay Dearly
Since October, when it defaulted on some key credit agreements, Allegheny has pinned its future on successful negotiations with its lenders. Allegheny's stock, pounded below $3 when the defaults were still fresh, has more than doubled in recent weeks as the company obtained bank waivers and rumors swirled that a permanent financing package was about to be inked. That optimism faded last week when Allegheny said it had uncovered accounting errors that would require financial restatements for the first two quarters of 2002 and delay reported results for the third. In the meantime, the company calculated its nine-month loss -- swollen by a huge writedown of its energy trading portfolio -- at $334 million, or $2.67 a share.