Allegheny Energy obtains $2.437 billion credit facility

By Sara Rosenberg

New York, Feb. 25 - Allegheny Energy Inc. and its subsidiary, Allegheny Energy Supply Co. LLC, have entered into agreements on new and restructured credit facilities totaling $2.437 billion. Salomon Smith Barney, JPMorgan and Scotia Capital were all part of the bank group, according to market sources.

The breakdown of the facilities is as follows:

* Allegheny Energy obtained a $330 million unsecured credit facility that expires April 18, 2005 and has an interest rate of Libor plus 500 basis points. Amortization on the loan is $7.5 million quarterly. Proceeds will be used to refinance existing debt and letters of credit.

* Allegheny Energy Supply obtained a $988 million secured credit facility that expires on April 18, 2005. The interest rate on the loan is Libor plus 600 basis points assuming credit ratings of BB- or lower, Libor plus 550 basis points assuming credit ratings of BB and Libor plus 500 basis points assuming credit ratings of BB+ or higher. Initially 90.5% of the loan is secured by substantially all assets of Allegheny Energy Supply, except for the Springdale generation project. If the unsecured portion is not secured by July 31, 2003, the rate on the unsecured portion increases to 12.5% retroactive to the closing date. Amortization is $30 million on Sept. 30, 2004 and $150 million on Dec. 31, 2004. Proceeds will be used to refinance existing debt and letters of credit comprised of $895 million outstanding under a revolver, $57 million of bilateral facilities and $36 million of St. Joseph synthetic lease B&C notes.

* Allegheny Energy Supply's new $470 million credit facility, $420 million of which is drawn, matures on Sept. 30, 2004 and has an interest rate of Libor plus 600 basis points. It is secured by substantially all assets of Allegheny Energy Supply, except for the Springdale generation project. Amortization is $250 million on Dec. 31, 2003 with the balance due at maturity. Proceeds will be used for general corporate purposes.

* The $269 million Springdale facility matures on April 18, 2005. The interest rate on the loan is Libor plus 600 basis points assuming credit ratings of BB- or lower, Libor plus 550 basis points assuming credit ratings of BB and Libor plus 500 basis points assuming credit ratings of BB+ or higher. Initially $150 million is secured by the Springdale generation project. The balance shares pro rata in security with Allegheny Energy Supply's $988 million facility. If the unsecured portion is not secured by July 31, 2003, the rate on the unsecured portion increases to 12.5% retroactive to the closing date. Proceeds will be used to refinance the Springdale synthetic lease.

* The $380 million St. Joseph synthetic lease A notes mature on Nov. 15, 2007 and have an interest rate of 10.25%. They are initially secured by substantially all assets of Allegheny Energy Supply, except for the Springdale generation project, pro rata with the Allegheny Energy Supply $988 million facility. If the unsecured portion is not secured by July 31, 2003, the rate on the unsecured portion increases to 13% retroactive to the closing date. Proceeds will be used to refinance existing debt.

Mandatory repayments include: 75% of net proceeds from asset sales by Allegheny Energy or its subsidiaries other than Allegheny Energy Supply up to $400 million and 100% thereafter will be used to prepay Allegheny Energy debt; 75% of Allegheny Energy Supply net asset sale proceeds up to $800 million and 100% thereafter will be used to prepay Allegheny Energy Supply and Allegheny Energy debt proportionately; 100% of net proceeds from the issuance of debt will be used to prepay Allegheny Energy and Allegheny Energy Supply debt proportionately; 100% of net proceeds from the issuance of equity in excess of $250 million will be used to prepay Allegheny Energy and Allegheny Energy Supply debt proportionately; 50% of excess cash flow of Allegheny Energy Supply will be used to prepay Allegheny Energy Supply debt; and 50% of consolidated excess cash flow of Allegheny Energy (excluding Allegheny Energy Supply) will be used to prepay Allegheny Energy debt.

"This is an important milestone for Allegheny Energy as we work to restore the financial health of our company and refocus on our core businesses. We appreciate our lenders' support," said Alan J. Noia, chairman, president and chief executive officer, in a news release.

"While our short-term liquidity needs have now been addressed, we must continue to concentrate on meeting our objectives for raising equity, selling assets, and further reducing costs in order to achieve long-term financial stability. In the coming months, we will be focused on these initiatives to improve our financial condition and strengthen our balance sheet," Noia said in the release.

Furthermore, as part of the negotiations with lenders, the Hagerstown, Md. energy company filed a Form 8-K with the Securities and Exchange Commission on Tuesday that contains projections regarding future operating performance, including balance sheets, income statements, and cash flow statements for Allegheny Energy and Allegheny Energy Supply. The information includes a projection of 2003 consolidated net income of $131 million and 2004 consolidated net income of $125 million. The preliminary projections also give effect to the new and restructured credit facilities and assume that Allegheny Energy issues $330 million of 8% mandatory convertible debt in the third quarter of 2003 and $375 million of 8% mandatory convertible debt in the third and fourth quarters of 2004 to meet scheduled debt amortization.

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