Debt issue rocks Sierra Pacific shareholders

Since it ran into financial trouble last year, Reno-based Sierra Pacific Resources reduced staff, delayed construction projects and eliminated the dividend on its common stock.

And some of the hardest work still may be ahead.

The company last week reported that it lost $307 million during 2002.

About $40 million of that loss came during the fourth quarter, largely as the result of unusually warm winter weather and higher interest costs.

Investors would have found cold comfort in the company's observation that it would have shown a profit of $35 million for the year if not for a pre-tax write-off of $527 million mandated by a Public Utilities Commission decision last year.

Disconcerting as the annual loss might have been, shareholders waited until the day after the earnings announcement to race for the doors.

That's when Sierra Pacific said it planned to privately sell $250 million of seven-year notes convertible into company stock.

That raised concerns among some investors about potential dilution of the stock.

Trading volume soared to more than 12 million shares on Tuesday, the day the planned convertible offering was announced, and the stock at one point during the day was down 28 percent to $3.25 a share.

That would give Sierra Pacific, which had 102 million shares outstanding late last year, a market capitalization of less than $500 million.

The stock held fairly steady at midweek when Sierra Pacific said it was able to raise $300 million rather than $250 million through the deal and would devote the extra $50 to improving its liquidity.

Bad news for shareholders, however, appeared to be good news for bondholders.

An analyst for Standard & Poors noted that the $250 million convertible offering raise money that Sierra Pacific Resources would use to pay off $191 million in debt that comes due on April 30.

"This staves off a potential liquidity crisis given Sierra Pacific's inability to otherwise meet its debt service obligation," said Swami Venkataraman, a credit analyst with S&P.

The credit-rating agency removed Sierra Pacific Resources from CreditWatch status, although it continued negative ratings on the company's $3.4 billion in outstanding debt.

Walt Higgins, the company's chairman, president and chief executive, repeated his message to financial analysts last week that the focus of Sierra Pacific Resources is cleaning up its balance sheet and improving its cash position.

The company's employment is down about 11 percent since the 1999 merger of Sierra Pacific Power, which serves northern Nevada, and Las Vegas-based Nevada Power.

Higgins said, too, the company has lined up new supplies both convention and alternative and is confident it can meet summer peak demand for power.

Of the company's fourth-quarter loss, $5.5 million was attributable to the northern Nevada operations.

That compares with earnings of $9.3 million in the same quarter a year earlier.