Sierra Pacific Resources remains in deep
financial trouble, but a credit-rating service
reports that the Reno-based utility is managing
to keep itself afloat.
Moody's Investors Service cautions that
Sierra Pacific Resources faces some daunting
challenges. Most serious among them
is repaying $200 million in notes that
come due next April.
Even so, Moody's said it's not ready to
cut the credit rating of Sierra Pacific
Resources further. And that amounts to a
small flicker of good news for the utility.
A Moody's review of the company a
review intended to determine if its credit
rating should be downgraded found
some positive news:
* The company's two operating subsidiaries,
Sierra Pacific Power in northern
Nevada and Nevada Power in the Las
Vegas area, managed to meet peak summer
demands while still building up cash.
* The wholesale suppliers of electricity sold
by Nevada Power have accepted delayed
payments, but the company expects to be
caught up by the end of this month.
* Sierra Pacific Resources is developing
accounts receivable strategies that will
reduce its need to rely on banks for liquidity.
"SPR and its subsidiaries have weathered
some very difficult times," a
Moody's analyst wrote.
The next step in the company's effort
to stave off bankruptcy comes this
month. Sierra Pacific Resources is privately
offering $250 million in notes, and
the proceeds would pay off bank loans.
The deal is expected to be completed by
the end of October.
If the financial package can be put into
effect, Moody's said it would consider
preserving Sierra Pacific Resource's credit
rating, although it would maintain a
negative outlook on the company.
That will provide a little breathing
room to Sierra Pacific Resources, but
Moody's cautioned that the $200 million
in notes that come due in April are likely
to present a tougher challenge.
The problem, the credit-rating agency
said, is this:
To repay the notes, Sierra Pacific
Resources needs cash to flow upstream
from Nevada Power and Sierra Pacific
Power. But lenders to financially pressed
Nevada Power have forbidden the utility
to pay dividends to its parent company.
"We believe that some of these limitations
will be addressed very shortly,
assuming [Nevada Power Co.] repays the
delayed payments to its current suppliers
and repays its bank debt," the Moody's
analyst wrote.
While the notes that come due in
April are among the most difficult issues
faced by Sierra Pacific Resources,
Moody's said other challenges include:
* Claims on behalf of the now-bankrupt
Enron Corp. for power purchased during
the sharp spike in energy prices in
late 2000 and early 2001.
* The company's ability to convince the
state Public Utilities Commission to
provide rate relief. Nevada Power will
make its pitch in November; Sierra
Pacific Power in January.
* A court case in which the company
seeks to reverse the PUC decision that
set off the current crisis.
In April, the PUC said Nevada Power
could charge its customers for only $485
million of the extra $922 million the
company paid for electricity in 2001. The
remainder, the PUC said, would be borne
by Sierra Pacific Resources shareholders.
Moody's said, too, it's following the
progress of an offer from Southern
Nevada Water Authority to buy Nevada
Power for $3.2 million, including debt it
would assume. The bond-rating agency
didn't provide a hint, however, about the
course it expects or prefers in the water
authority bid.
