Midlantic Bank Calls In PSNH Bond Issue
CONCORD, N.H. (AP) _ A bank nudged Public Service Company of New Hampshire one step closer to bankruptcy court Wednesday when it called in a $425 million bond issue that is in default.
The New York Stock Exchange suspended trading in PSNH stock and bonds for several hours after Midlantic National Bank of Edison, N.J., the sole trustee for the 17 1/2 percent debentures due in 2004, demanded payment of the principal and accruing interest.
PSNH, the ailing principal owner of the stalled Seabrook nuclear power plant, skipped a $37 million interest payment on the notes on Oct. 15, becoming the first major investor-owned utility to default since the Great Depression. The company since has skipped four payments totaling $12 million on other debts.
Under terms of the loan agreement with Midlantic, the bank may demand payment of principal and interest 30 days after any payment is skipped.
The utility will not pay the $425 million in principal, said PSNH spokesman Nicholas Ashooh.
″We’re not in a position to pay that,″ he said. ″That’s why we didn’t pay the interest.″
Ashooh said Midlantic’s move will not prompt the utility to seek bankruptcy protection voluntarily, and he reiterated that PSNH officials hope a judge will put any involuntary bankruptcy petitions on hold while out-of-court reorganization efforts are in progress.
Midlantic spokesman Charles Ward would not comment on the reasons for the bank’s action nor its timing. He said the bank has not decided what further action to take.
Wall Street analysts said the bank, being responsible for the debtholders, may have decided to protect itself legally by exercising its right to call in the full debt.
″From what I can tell they acted on their own and were not pushed to do this by debenture-holders,″ said Paul Parshley of Donaldson, Lufkin and Jenrette, who said he contacted many of the major creditors Wednesday.
″I don’t think it necessarily foreshadows a Chapter 11 (bankruptcy) filing,″ Parshley said, ″but it sets in motion a process that is increasingly difficult to stop ... We don’t know why they would take this step if they didn’t intend to pursue the matter further.″
″Maybe they believe there is some value in being first in line,″ he added.
Parshley and his partner, James Asselstine, said Midlantic’s next step would be to get a court to support its claim that PSNH now owes it nearly $465 million.
Should that happen, under terms of the loan agreement the process could be halted only if PSNH paid its back interest in cash and if owners of a majority of the defaulted bonds directed Midlantic to drop the matter, Asselstine said.
Asselstine and Parshley said it is unclear whether Midlantic could initiate bankruptcy proceedings. Three creditors who together hold at least $5,000 in bonds can start the proceedings after the grace period, usually 30 days, expires.
Amil Schiaffino of McCarthy, Crisanti and Maffei Inc. said major creditors apparently believe that a bankruptcy judge would give out-of-court reorganization proposals a chance before forcing PSNH into bankruptcy court.
″The large institutional investors who are savvy and own a bit of this apparently have decided it’s in nobody’s interest to do this yet,″ Schiaffino said. He added that he was surprised that smaller investors in the widely-held issue have not initiated bankruptcy proceedings, but said Midlantic’s move does not necessarily mean they will now.
PSNH’s woes stem from its $2.1 billion investment in the $5.1 billion Seabrook nuclear reactor, which is completed but sits idle, unable to overcome evacuation-planning obstacles to an operating license.
New Hampshire law bars utilities from charging ratepayers for power plants before they operate commercially. PSNH, which seeks an emergency $71 million rate increase as part of its survival effort, has asked the state Supreme Court to overturn that law, and oral arguments are scheduled for next week.
PSNH, the state’s largest electric company, also is trying to restructure its debt and offered one proposal in September, but a dissident bondholders’ group squelched the deal and the utility is revising the plan. PSNH spokesman John Cavanagh said he did not expect the new proposal to be unveiled before January.
The utility has trimmed its budget, but warned it would run out of cash by year’s end unless it suspended payments on unsecured debt.
After skipping the $37 million bill in mid-October, PSNH missed $1.6 million payments at the end of October and November on its last borrowing, a $100 million floating-rate junk bond sale in May; a $7.5 million payment due in mid-November on another debenture; and a $1.3 million payment due Dec. 1 on pollution control revenue bonds.
After Midlantic made its demands, the New York Stock Exchange suspended trading in PSNH stock and bonds at the opening Wednesday morning and resumed trading about 1 p.m.
PSNH common stock closed at 3 1/4 , down 1/2 but still a full point ahead of its low for the year. The 17 1/2 percent debentures closed down 1 3/4 at 29 1/4 .
Officials at federal bankruptcy courts in Manchester, N.H., and Trenton, N.J., said late Wednesday afternoon they were unaware of any involuntary or voluntary filings involving PSNH.