Entergy's New Orleans unit files for bankruptcy

Reuters | September 23, 2005 | Michael Erman

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NEW YORK, Sept 23 (Reuters) - Utility operator Entergy Corp., which provides electricity to much of the U.S. Gulf Coast, on Friday said its New Orleans subsidiary has filed for Chapter 11 bankruptcy protection due to damage caused by Hurricane Katrina.

Entergy New Orleans filed with the United States Bankruptcy Court for the Eastern District of Louisiana, saying that the storm "dealt a body blow" to the unit, destroying facilities, disrupting revenue, and impairing the ability of its customer base to pay bills.

The company asked the court to approve debtor-in-possession financing that includes $200 million in loans to the New Orleans unit from the parent corporation.

It also asked for approval of $150 million of these loans on an interim basis so the unit can meet near-term obligations including employee wages and benefits, power purchase and gas supply agreements and efforts to repair its damaged assets.

Earlier this week, Entergy said it was considering bankruptcy for the unit, which was its hardest hit by the storm. It said that liquidity at Entergy New Orleans, which only had cash and cash equivalents of $533,000 on hand at the end of August, was stretched due to lower revenue and storm restoration costs.

The unit, which was responsible for about 3 percent of the total company's earnings, is the smallest of Entergy's five utility companies.

"We believe this is a good decision for that business," said Deutsche Bank analyst Robert Rubin. Filing for bankruptcy protection for the New Orleans unit "was a very smart decision by management, because basically they are going to set up an orderly process to rebuild their business, and they are not going to risk capital."

Still, Rubin said he could not understand the market reaction to the bankruptcy -- Entergy shares closed up 97 cents, or 1.4 percent, to $72.

"You never knew what bankruptcy is going to yield ... ultimately Entergy could lose control of the unit over the long term if the recovery prospects don't work out for the New Orleans bond holders and preferred share holders," he said.

SUFFICIENT LIQUIDITY

Despite the filing from Entergy New Orleans, Entergy Corp. said it believes it has sufficient liquidity to meet its current obligations and fund the restoration.

The parent company said it obtained amendments to its $2 billion revolving credit facility and other bank facilities to prevent Entergy New Orleans' bankruptcy from causing a default of the facilities.

It said the court has set a hearing for the petition on Sept. 26.

According to Entergy, U.S. Sens. Mary Landrieu and David Vitter from Louisiana sent a letter to U.S. President George W. Bush saying that the bankruptcy of Entergy New Orleans could stall restoration in the city.

"The bottom line is that we have a massive task ahead of us in rebuilding New Orleans and the bankruptcy of the principle gas and electric utility in the city does not help that goal," said Sen. Landrieu's spokesman Adam Sharp. "It would have been preferable to do what we could at the federal level to prevent this from happening."

But Jackie Clarkson, a member of the New Orleans City Council who represents the West Bank area, said she did not expect the bankruptcy to affect the restoration efforts.

"They are truly in the leadership of rebuilding New Orleans, so this not only won't interfere, I feel if anything (we) will pull together even harder," Clarkson told Reuters.

As of Thursday night, Entergy had restored power to about 880,000 of its customers, after Hurricane Katrina left about 1.1 million of its customers in the dark last month.