An insurance company backing some of Entergy New Orleans Inc.’s bonds will propose a reorganization plan that, unlike the company’s plan, will not depend upon the utility getting a $200 million government bailout, according to a federal bankruptcy court filing Nov. 14.
Entergy New Orleans, a unit of Entergy Corp. that serves the customers in the city of New Orleans, filed for bankruptcy protection in October 2005 because of hundreds of millions of dollars in damage to its electricity and natural gas systems from Hurricane Katrina and the loss of a huge chunk of its customer base.
Federal Guaranty Insurance Co., which covers about $75 million of Entergy New Orleans bonds, wants to put up an alternative reorganization plan, saying the company’s plan filed Oct. 24 does not guarantee its long-term liquidity and viability.
The insurance company did not file a definitive plan, but told U.S. Bankruptcy Judge Jerry Brown what elements would be involved.
“We can’t put in an alternative plan until the court grants us permission to do so,” said Rudy Cerone, an attorney for Federal Guaranty Insurance. “But the court won’t do that until we tell the court what we plan to do.”
Last month, Entergy New Orleans said that with $200 million in federal aid being steered by the state and a rate hike plan in the city, which has been approved, the company could emerge from bankruptcy protection by the end of 2007.
But Federal Guaranty Insurance served immediate notice that it would propose its own plan, if the bankruptcy court allows. The insurer says the plan is tailored for the benefit of Entergy New Orleans’ parent, New Orleans-based Entergy Corp., and does not cover Entergy New Orleans bondholders adequately.
The insurer also pointed out that there is no guarantee that Entergy New Orleans will get the $200 million. Although the Louisiana Recovery Authority has approved the grant, the move still must be approved by the Legislature and federal officials.
During a state legislative committee meeting Nov. 13 that reviewed the $200 million grant, some lawmakers complained that nothing was going to other utilities hit by hurricanes Katrina and Rita, including Entergy Louisiana LLC, Entergy Gulf States Inc., and Cleco Corp. – leaving customers to pay for uninsured storm damage.
Entergy New Orleans spokesman Morgan Stewart said Nov. 14 that Fidelity Guaranty Insurance’s “sole concern is the repayment of the bonds it insured. On the other hand, Entergy New Orleans has fiduciary duties to all of its creditors and the ratepayers of New Orleans.”
Stewart said that since the company is moving toward getting the $200 million payment and the City Council has approved higher rates and a storm restoration fund, Entergy New Orleans “is in a position to delete most of those conditions” to its reorganization plan.” He said an amended plan would be filed by the company soon.
In its outline of a proposed reorganization plan, the insurer also says it would restrict Entergy New Orleans’ payment of dividends to the parent company and would require Entergy Corp. to guarantee the repayment to Entergy New Orleans of any loans of government money or insurance proceeds made to the Entergy system money pool, through which Entergy affiliates loan money to each other at favorable interest rates.
“Absent a choice, creditors will be pressured into accepting a plan, which, while ensuring that the interests of Entergy and its affiliates are protected, puts the recoveries of creditors and the future of the debtor’s (Entergy New Orleans) operations, at risk,” the insurance company said.
Entergy Corp. is not covered by the bankruptcy filing. During the third quarter of 2006, Entergy posted earnings of $388.9 million, or $1.83 per share, on revenue of $3.25 billion, compared with year-ago earnings in the third quarter of $350 million, or $1.65 percent, on revenue $2.9 billion.
Was this article valuable?
Here are more articles you may enjoy.