Seabrook's chief owner fights bankruptcy on many fronts
The intense struggle by Public Service Company of New Hampshire to get its Seabrook nuclear power plant operating and to keep from becoming the first investor-owned electric company to go bankrupt since the depression has been a mixture of victories and setbacks lately. A setback came last week when Midlantic National Bank of Edison, N.J., called in a $425 million bond issue. Midlantic, sole trustee for the 17 percent debentures due in 2004, demanded payment of the bonds' principal and accruing interest. Public Service had skipped a $37 million interest payment on the notes Oct. 15.
The New York Stock Exchange suspended trading in Public Service shares for several hours Dec. 9, the day of Midlantic's action, and a Public Service spokesman said the company would try to avoid being forced into involuntary bankruptcy while out-of-court reorganization efforts are in progress.
That setback followed a couple of small earlier victories for Public Service:
On Dec. 4, the United States Court for the District of New Hampshire granted the utility's request for a preliminary injunction prohibiting another group of bondholders from holding a meeting to consider reorganizing the company. According to Public Service, the meeting was scheduled as part of a takeover attempt.
And on Nov. 25, the Nuclear Regulatory Commission (NRC) lifted a stay barring the agency's licensing division from issuing a low-power license, a preliminary step before full-power operation.
The 1,150-megawatt Seabrook reactor was loaded with fuel in October 1986, but has been idle since then, immobilized by Massachusetts Gov. Michael Dukakis's decision not to participate in the NRC-mandated emergency response plans to be submitted by all cities and towns within a 10-mile radius of the plant. Six such towns are in Massachusetts.
New Hampshire law prohibits the utility from recovering any of its investment in the $5 billion plant until it begins operating. The New Hampshire Public Utilities Commission is thus barred from granting Public Service's request for $70 million in emergency rate relief.
Uncollected costs for the utility are accumulating at about $1 million a day, and the recent inability of Public Service to raise money in the capital markets and to stop diminishing cash reserves has put it on a fast track to insolvency.
Against this background, the utility recently filed with the Securities and Exchange Commission a financial restructuring proposal to lower its annualized cash interest payments by about $143 million and to defer 1988 maturity payments of $175 million.
The proposal would mean voluntarily exchanging certain outstanding third-mortgage bonds and unsecured debt for new bonds and warrants to purchase shares of common stock.
While the utility says the restructuring plan will actually reduce its capitalization and thereby lower its debt service obligations, the group of utility bondholders, Consolidated Utilities & Communications Inc., has challenged the proposal, calling it little more than a stopgap bailout.
Consolidated Utilities has come up with its own restructuring plan. Under it, Public Service would be split into two companies. The first, called Seabrook Inc., would continue to be owned by present Public Service stockholders along with current unsecured creditors. Seabrook Inc. would retain Public Service's 36 percent interest in the Seabrook plant.
The ``New Public Service'' would be owned by the utility's current third-mortgage bondholders, who would agree to transform their debt instruments into equity shares.
The Dec. 4 court injunction forced cancellation of a Dec. 9 meeting called for by the trustee for Public Service's third-mortgage bonds to discuss Public Service's current financial difficulties.
A Consolidated Utilities spokesman denied that the consortium of bondholders was positioning itself for a takeover bid. ``We are dealing with alternative plans for reorganizing the company,'' he said.
In a Dec. 1 report to the New Hampshire Public Utilities Commission, the utility said it had met with Consolidated Utilities representatives, but had not reached agreement with them on the proper evaluation for the company - a key to any viable exchange offer.
Public Service is already in technical default, having suspended scheduled principal and interest payments on certain unsecured notes and debentures in October. This exposes the company to petitions from securities holders, like Midlantic Bank, who could force the utility into involuntary bankruptcy. Some analysts, however, believe such a petition is more likely to come from holders of third-mortgage bonds, if and when the utility defaults on these.
In its Nov. 25 motion for a preliminary injunction against Consolidated, Public Service said it has not conceded it would fail to make the interest payment on these third-mortgage bonds, due next February.
According to John Edwards, vice-president of Public Service, the original capital restructuring proposal was based on the voluntary participation of 85 percent of the debt meant for exchange. This means that opposition by owners of about 16 percent of the debt could block the plan, and Consolidated Utilities officials say it has enough of the debt to do this.
Financial analyst Tom Hamlin, vice-president at the Chicago firm of Duff & Phelps, believes Consolidated chairman Martin Whitman has garnered enough proxies to veto any of these restructuring plans.
``What he is effectively doing is making a run on the company,'' he says.
The major obstacle to Public Service's effort to regain financial integrity continues to be the absence of a comprehensive emergency evacuation plan. In removing a key impediment to issuing a low-power operating license, the Nuclear Regulatory Commission accepted the utility's evacuation plan, offered in place of a community-based plan.
The utility's authority to submit such a plan when state or local governments refuse to participate was ratified by the commission Nov. 3 in a new rule. On Dec. 1, however, Massachusetts Attorney General James Shannon filed an appeal in the First Circuit Court of Appeals in Boston, seeking to overturn the rule.
Mr. Shannon said Massachusetts refused to approve emergency plans for Seabrook because such plans could not adequately protect its citizens in the event of a nuclear accident. The NRC rule change was ``designed to circumvent the constitutional rights and police powers of the state,'' Shannon told the court.
``We cannot and will not allow this to happen,'' he said.