Finance Briefs

Terrorism casts shadow onto contracts

Reliant Resources Inc. and Orion Power Holdings Inc. included a clause addressing terrorism as part of their $2.9 billion merger, according to Under the agreement, changes in power markets and distribution systems aren’t grounds for canceling the deal, “except to the extent caused by a material worsening of current conditions caused by acts of terrorism or war.” “Material adverse change”-along with force majeure or “Act of God” clauses-has been haggled over for years. Once largely confined to abrupt changes in the financial condition of a party, its terms are now increasingly being expanded to include changes within an industry.

Capstone Turbine stumbles in Q3

Capstone’s Q3 microturbine shipments and revenues dropped off significantly. A total of 80 units were shipped (compared to Q2’s 400 units) and revenues were about $3M. The substantial sales drop raised doubt as to whether economic conditions were the only issue. Cash dropped to $180M from $215M, reflecting a higher burn rate of $35M due to miserably low unit sales volumes. Capstone believes its cash is sufficient to “weather a significant downturn in the economy.” Merrill Lynch believes a very substantial recovery from current sales levels will be needed to sustain the company’s viability. They’ve lowered their near-term rating to neutral from accumulate and their long-term rating to accumulate from buy.

Fitch affirms AEP’s senior notes BBB+

American Electric Power’s announcement that it will acquire 4,000 MW of coal-fired generation in the U.K. from Edison Mission Energy garnered a BBB+ rating for its senior unsecured notes. AEP expects the two acquired stations (Fiddler’s Ferry and Ferrybridge) to make immediate financial contributions-about $19M-to 2002 net earnings. AEP’s rating reflects the positive impact this acquisition should have on its European wholesale business.

Merrill Lynch gives thumbs up to coal producers

Merrill Lynch reiterated its outlook for significant earnings momentum for Arch Coal, CONSOL Energy, Massey Energy and Peabody Energy beginning in 2002 because most 2002 (and some of 2003) sales contracts were locked-in at substantially higher realized prices prior to the current economic slowdown. Arch and CONSOL have the potential to double their earnings in 2005 from the 2002 base level.

NYPA completes debt refinancing

New York Power Authority agreed to sell $191M of Series A revenue bonds and will use the proceeds from the sale to refund the Nov. 15, 2001, tenders of a portion of its taxable Series 1998 B revenue bonds in the principal amount of $198M. According to NYPA, this action brings it closer to completing the refinancing of its senior debt, begun in 1998, which has resulted in debt service savings of more than $700M. At press time, NYPA planned to complete in late October its debt refinancing with a forward sale of fixed rate, tax-exempt Series 2002 A revenue bonds. Those proceeds will be used to refund tenders of the remainder of the Series 1998 B revenue bonds in the principal amount of $190M. Moody’s assigned Aa2 credit rating on NYPA’s Series 2002 A bonds. Moody’s also reported that NYPA’s exposure to the World Trade Center attack was confined to the loss of the sale of electricity for the complex. It did not own any infrastructure there. NYPA estimated gross revenue loss to be in the $20M range. It expects to be able to remarket the power in the New York ISO market, so net loss will be considerably less.

Swiss Re New Markets & Mirant offer insurance product

Swiss Re New Markets Corp. (SRNM) and Mirant entered into a cooperation agreement to provide generator forced outage insurance (GFOI). They will focus on IOUs, munis and coops with less than 2,000 MW generating capacity and IPPs with less than 3,000 MW of capacity in North America. GFOI is triggered when a generating unit is not operating due to a forced outage or derating and the price of electricity is in excess of a defined strike price. McGriff, Seibels & Williams will be marketing coverage and providing brokerage and policy services; an affiliate of SRNM will underwrite the risk. Mirant Bermuda Ltd., an affiliate of Mirant, will be assuming a portion of the GFOI risk through reinsurance. Mirant will provide engineering, risk management and operational advice to Mirant Bermuda Ltd.

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The Clarion Energy Content Team is made up of editors from various publications, including POWERGRID International, Power Engineering, Renewable Energy World, Hydro Review, Smart Energy International, and Power Engineering International. Contact the content lead for this publication at

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