Allegheny Energy's refusal to post more collateral causes default on loans

By Sara Rosenberg

New York, Oct. 8 - Allegheny Energy Inc. was declared in default under its trading agreements following the company's refusal to post additional collateral with trading counterparties. Upon defaulting on its trading agreements, cross-default provisions were triggered resulting in technical default under its principal credit agreements as well as those of its subsidiaries.

The counterparties opted to seek extra collateral protection following the company's credit rating downgrade by Moody's Investors Service. However, the company "believes that its underlying businesses remain fundamentally sound, and that it will ultimately be able to obtain the necessary liquidity to resolve its current situation," a news release said.

The Hagerstown, Md. energy company is involved in discussions with its bank lenders in an attempt to obtain waivers and additional funding.

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