Allegheny Announces Debt Issue

Allegheny Energy (AYE) yesterday announced that its unregulated generation subsidiary Allegheny Energy Supply Company LLC (AE Supply) will issue $600 million aggregate principal amount of senior unsecured notes. 

Of the $600 million notes to be issued, $350 million notes come with a coupon rate of 5.75% due 2019. The rest $250 million notes come with a coupon rate of 6.75% notes due 2039. The company anticipates the notes offering to be completed by Oct 1, 2009. 

AE Supply will use the proceeds from the $600 million issue to repay a term loan of $447 million and refinance $150 million of its outstanding notes due 2011. The existing notes come with a dearer coupon rate of 7.80%. 

The company is focused on cleaning its balance sheet and reduce interest burden by refinancing debt with lower interest rates. AE Supply’s proactive role in debt reduction has already reduced the interest burden of the Generation & Marketing segment by $2.8 million and $9.9 million year over year for the three and six months ended Jun 30, 2009, respectively. 

This was due to lower average debt outstanding at lower interest rates under AE Supply’s credit facility and increased capitalized interest resulting from capital projects that were partially funded by cash from operations. Headquartered in Greensburg , Pennsylvania , Allegheny is engaged in both regulated electricity and natural gas distribution utility operations as well as in the unregulated wholesale energy markets. 

The company operates through two business segments: the low-margin Delivery & Services and the high-margin Generation & Marketing. The Delivery & Services segment consists of three regulated electric utilities, which operate electric transmission and distribution systems and a natural gas distribution system. This segment provides electricity to 1.6 million customers in Pennsylvania , Virginia , Maryland and West Virginia . The Generation & Marketing segment consists of unregulated power generation operations and marketing operations, which are conducted primarily through its subsidiary, AE Supply. We maintain our long-term Neutral recommendation on Allegheny shares.

Read the full analyst report on AYE