Oct 9, 2002 2 min read

HAGERSTOWN, Md. (Dow Jones/AP) – Utility holding company Allegheny Energy Inc. Tuesday said that it was in default on some of its loans, after it failed to post additional collateral following a credit downgrade. Allegheny also said that because of continued weakness in the wholesale energy market, fiscal 2002 and 2003 earnings will be lower than expected.

Moody’s Investor Service last week downgraded the company’s credit rating to “junk” status.

At the time, Allegheny said that Moody’s action wouldn’t trigger any defaults or prepayment obligations under its debt agreements.

Allegheny has entered talks with lenders to try to obtain default waivers and extra funding.

Shares of the company plummeted on the news.

They were at $3.72 in early trading on the New York Stock Exchange, down $3.80, or 51 percent, on heavy volume.

The day’s weakest level of $3.69, at that point, was a new 52-week low. Allegheny’s prior low of $7.52 was set Monday.

Allegheny, which is based in Hagerstown, offers electricity and natural-gas service in Maryland, Ohio, Pennsylvania, Virginia and West Virginia.

In July, Allegheny stood by its 2002 earnings outlook of $2.50 to $2.70 a share, and its 2003 forecast of $2.60 to $2.80 a share.

Analysts surveyed by Thomson First Call are looking for the company to earn $2.28 a a share this year and $2.19 a share in 2003.

Allegheny, like most of the power industry, has been forced to cut capital spending and lay off employees because of weak earnings due to poor power prices, among other factors.

Last month, Allegheny filed a lawsuit against Merrill Lynch & Co., alleging that Merrill inflated revenue of an energy-trading unit through a series of so-called wash trades with Enron Corp. before the business was sold to Allegheny in 2001.

The lawsuit was filed the day after Merrill filed suit in federal court seeking to collect the $115 million that Allegheny allegedly owes the firm as part of the deal.