[BETA] Fortnightly

After four years and four tries, El Paso Electric Co. (EPE) has finally got a plan, and a ticket out of bankruptcy. EPE's fourth amended reorganization plan has been approved by the federal bankruptcy court as well as federal and state regulators, and received near-unanimous acceptance by creditors and stockholders.

The plan proposes two alternative methods of emerging from bankruptcy. Under the preferred alternative, EPE would use the proceeds from an underwritten public offering of first mortgage bonds to repay the claims of existing secured creditors in full. If market conditions in early 1996 do not permit an underwritten offering, however, EPE would have to distribute new senior secured debt to settle the claims of secured creditors. In either case, unsecured creditors will receive cash, new secured debt, preferred stock, and 85 percent of the reorganized company's common stock. Existing preferred and common shares will be canceled, and holders will receive 15 percent of the reorganized company's common stock (em 12 percent to preferred shareholders, and 3 percent to existing common shareholders.

EPE's capital structure will include about $1.2 billion in senior secured debt, including $200 million of pollution control bonds, $100 million of preferred stock, and common shares. Moody's Investors Service has assigned a 'Ba3' rating to the $1 billion of first mortgage bonds expected as part of EPE's emergence from bankruptcy. Moody's assigned a 'b3' rating to $100 million in redeemable preferred stock EPE plans to issue concurrently.

The ratings reflect EPE's $24.9-million retail rate increase and regulatory stability from a 10-year rate freeze in Texas. The rate increase and freeze affect 57 percent of total revenues. EPE has also negotiated a $600-million reduction in debt load, primarily with unsecured creditors, which will reduce interest expense by one-third, to $103 million per year. Recent long-term contracts with the Department of Defense, and above-average growth in service territory, provide additional intermediate-term comfort.

Moody's noted, however, serious longer-term competitive challenges, such as EPE's 15.8-percent share of the Palo Verde nuclear generating stations. The new, as-yet-unnamed EPE management team also provokes uncertainty, as does ongoing litigation with the City of Las Cruces, NM.

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