Allegheny on target to reach $1.5 billion debt reduction goal by year-end 2005

By Sara Rosenberg

New York, Oct. 26 - Allegheny Energy Inc. is "comfortable" with hitting, and possibly surpassing, its target to reduce debt by $1.5 billion during the period started Dec. 1, 2003 through the end of 2005, especially since $900 million of debt has already been paid down, company officials said at the Edison Electric Institute Financial Conference Tuesday.

"We want to move toward investment grade and we have a program for that," officials continued.

Included in this $900 million reduction is the $200 million of term loan B and term loan C debt being paid down, using $50 million of cash and $150 million of equity proceeds previously raised, in connection with the obtainment of a new $1.044 billion term loan B at Allegheny Energy Supply Co. LLC.

The new term loan B, which is expected to close Wednesday, is being used to combine Allegheny's existing term loan B and term loan C into one large term loan with lower pricing of Libor plus 275 basis points. Currently, the company has a total of $1.244 billion of term B and term C debt, with the term B priced at Libor plus 300 basis points and the term C priced at Libor plus 425 basis points.

After closing on the term loan, once the company pays down $200 million of the new term B tranche using cash flow, net cash proceeds from asset sales or net cash proceeds from the issuance of equity, pricing will step down to Libor plus 250 basis points.

The remaining $600 million in debt reduction is expected to come from already announced asset sales and free cash flow, with asset sales accounting for $497 million and free cash flow accounting for approximately $103 million.

The assets being sold include the Lincoln generating facility for $173 million with closing anticipated in the fourth quarter, OVEC for $96 million proceeds at closing, which is targeted for the fourth quarter of 2004 or the first quarter of 2005, and Mountaineer Gas for $228 million proceeds at closing, which is targeted for mid-2005.

As for the free cash flow, although $103 million sounds high, the company is not worried since it is expecting more than $250 million in free cash flow for 2004 and 2005 combined, officials said in the presentation.

Allegheny is a Greensburg, Pa.-based owner and operator of electric generating.

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