TECO Energy exiting Arizona projects, will take up to $780 million after-tax charge

By Jeff Pines

Washington, Feb. 5 - TECO Energy, Inc. said it has had enough of the wild west and is going to refocus on its Florida utilities business.

The Tampa, Fla.-based company has decided to exit its ownership of the Union and Gila River projects and to quit funding their two power plants. Earlier this week, the company said it, the project companies and the lenders entered into a standstill that ended Thursday.

Under a proposed agreement, the banks will become the owners of the projects.

In addition, the company announced it was rescheduling its fourth quarter and 2003 earnings conference until it resolves the accounting costs associated with ending its involvement with the two project companies. The company tentatively rescheduled the earnings conference call for Feb. 9.

TECO, the project companies and their lenders have reached an understanding on a letter of intent with the lending banks that provided the non-recourse project financing, the company said.

A steering committee for the banks approved a non-binding letter of intent, which recommends the group accepts the proposition. The letter calls for reaching a definitive agreement by June 30 and then closing the deal by Sept. 30.

The banks could reject the offer and then foreclose on the project companies, but TECO's management thinks the banks would prefer a consensual deal over a foreclosure.

The settlement agreement covers the $66 million of letters of credit posted by TECO under the construction undertaking, with $35 million to be drawn for the benefit of the project companies and the remaining $31 million of letters of credit to be cancelled and returned to TECO.

In return for the paying off the non-recourse debt, TECO and the project companies will sell the two power plants to the banks.

Even without an agreement, TECO said it could end its ownership of the plants and leave their final disposition to its two subsidiaries. The project companies jointly and severally guarantee and cross-collateralize each other's loans and debts.

"This is the most significant step in our back-to-basics strategy, refocusing on our regulated Florida utilities. This decision formalizes our intent to exit these merchant projects and to make no additional investment in them," "TECO Energy chairman and chief executive officer Robert Fagan said in a press release.

TECO's decision to invest in the plants more than three years ago was based on a different kind of market, he explained.

"Since then, for a variety of reasons, policy makers have retreated from mandating wholesale competition, supplies currently exceed demand, and economic growth has been less robust, Fagan said. "In short, the market conditions we anticipated at the time we made our sizable investments in merchant power have not materialized."

Based on its short-term view of these projects and its efforts to unload them, TECO's consolidated financial results will include, as of Dec. 31, 2003, an asset impairment of up to $780 million, after tax, for previous investments to reflect adjustments to the value of the subsidiaries that own the interests in the two plants.

As of Dec. 31, after giving effect to the impairment charges, TECO was in compliance with its 65% debt-to-total capital financial covenant at 62%. In order to provide contingent liquidity in the event that the required debt-to-total capital should not be met, freezing access to its $350 million bank credit facility, TECO arranged in December a $200 million standby credit facility secured with the capital stock of TECO Transport Corp. that would become effective in case the debt-to-total capital ratio exceeded 65%. It does not anticipate exceeding the 65% limit and activating this facility.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.