Puget Sound Energy buyers add $200 million cash to meet debt concerns

By Julie A. Miller

Washington, July 23 - Puget Sound Energy's buyers will put up an additional $200 million of their own money into the $7.8 billion deal as part of an agreement to win the backing of many of the parties that had opposed the transaction.

In a settlement proposal filed Wednesday with the Washington Utilities and Transportation Commission, the prospective buyers of Washington state's largest utility also said they won't seek to raise utility rates in order to recoup the financial and legal costs of the acquisition, including the 30% premium they are proposing to pay Puget Energy shareholders.

Critics said the investors were borrowing too much money to buy the utility, saddling it with debt that could endanger its credit rating and expose consumers to financial risk. In response, the buyers, a group led by Macquarie Infrastructure Partners, agreed to reduce the size of a short-term loan from $1.425 billion to $1.225 billion by putting up an additional $200 million of equity. They also promised to refinance that loan into a longer-term deal.

After the takeover, Puget Sound Energy won't be able to make loans or transfer property to its holding company without permission from the Utilities and Transportation Commission, and will maintain its own debt, stock and credit ratings. The settlement bars any "cross-subsidization by PSE customers of unregulated activities." And the company will be barred from making shareholder distributions if its equity percentage or credit rating drop below specified levels.

The buyers also promised to honor the utility's labor and energy efficiency commitments and increase assistance to low-income ratepayers.

The settlement documents confirm that the Washington state Attorney General's office of public counsel isn't signing on to the agreement.

The Bellevue, Wash.-based electricity and natural gas utility reached the agreement with staff of the Utilities and Transportation Commission, which acts as an independent entity; the Industrial Customers of Northwest Utilities; Northwest Industrial Gas Users; the Energy Project; the Northwest Energy Coalition and Kroger Co.

Puget announced the proposed buyout in October 2007. In addition to Macquarie, an investment concern that focuses on infrastructure assets in the United States and Canada, the consortium includes three Canadian pension plans. It offered to buy Puget at $30 a share for its common stock. Puget says it needs capital to finance maintenance and new infrastructure needed to meet increased customer demand.

The utilities commission has the authority to approve the settlement, even if there are objections to it, approve the buyout with its own conditions or reject it. The settlement agreement says the parties will ask for expedited consideration of the merger.

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