Allegheny Energy swings for fourth-quarter profit, makes progress on debt

By Paul Deckelman

New York, Feb. 18 - Allegheny Energy Inc. reported a swing to a fourth-quarter profit Friday, helped by the gains from the sale of an equity interest and power rights in the Ohio Valley Electric Corp.

The Greensburg, Pa.-based electric utility company also said that it was continuing to reduce debt and was well on its way to meeting its previously announced goal of $1.5 billion of total debt reductions by the end of this year.

It said that it had eliminated most of that sum - fully $1.2 billion of debt - between Dec. 1, 2003 and Jan. 31 of this year.

Included in the debt reduction effort was a refinancing of its bank debt in October, which resulted in $200 million of the company's term loan B and term loan C debt being paid down, using $50 million of cash and $150 million of previously raised equity proceeds. As part of the transactions, the company also obtained a new $1.044 billion term loan B at its Allegheny Energy Supply Co. LLC subsidiary.

Allegheny's chief financial officer, Jeffrey Serkes, told analysts on a conference call following the release of its fourth quarter and 2004 results that the bank debt refinancing resulted in $10 million of annualized interest cost savings.

All told, the company's interest expense decreased by $17.1 million during 2004, to about $400 million at year-end, due both to a lower debt balance and reduced borrowing rates, which were partly offset by the $9.2 million charge for financing fees. The average interest rate in 2004 was 7.2%, a 50 basis point improvement over 2003's average rate.

As of Dec. 31, long-term debt on the balance sheet had been reduced to $4.54 billion from $5.12 billion at the end of 2003. Long-term debt due within one year was $385.142 million, down from $544.843 million a year earlier. Short-term debt was reduced to nil from about $53.61 million a year earlier.

2005 interest expense to fall

Serkes said that 2005 interest expense should be $60 million below 2004's, because of the lower debt balance and the reduced borrowing rates.

The company posted $304 million of EBITDA in 2004. EBITDA coverage of interest needs increased to over twice the scheduled interest costs, from 1.5 times a year earlier.

The company - which had run into considerable financial difficulty in 2002 and 2003 amid a general downturn in the electric power generating industry, reported consolidated net income for the 2004 fourth quarter of $72.4 million, or 48 cents per diluted share - a sharp turnaround from its year-earlier net loss of $13.7 million, or 11 cents per share. Results for the 2004 fourth quarter include a one-time after-tax gain of $59.4 million for the sale of its OVEC stake.

Paul J. Everson, Allegheny's president, chairman and chief executive officer, said on the conference call that 2004 had been "a year of accomplishment and transition" and, noting the company's five-point strategy, which includes growing earnings and continuing to cut debt, he said 2005 would be "a year of intense execution."

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