AES Corp. yesterday gave itself three more days to refinance $300 million in bonds coming due this month, a critical step in the Arlington energy company's effort to head off a looming cash crunch.
The company had set Tuesday as the deadline for bondholders to swap the current bonds for some cash and new debt at a higher interest rate that comes due in 2005. If 80 percent of those bonds and a second, $200 million bond issue were exchanged for the longer-term debt, the company says, it could refinance $1.6 billion in bank loans coming due next year. Bondholders making the exchange would get an immediate cash payment for part of their debt as an added inducement.
AES said 86 percent of the $200 million issue and 77 percent of the $300 million issue had been exchanged as of the Tuesday deadline. The offer will now expire at 5 p.m. tomorrow. If the exchange doesn't take place, AES must pay off the $300 million bond issue on Dec. 16.
"They are just on the cusp," said Christopher R. Ellinghaus, a securities analyst at Williams Capital Group LP. "This extension is not a concern." Ellinghaus owns AES shares and has a "hold" rating on the company's stock.
AES, one of the world's largest electricity providers, relies on dividend payments from its power plants around the world to meet debt obligations. A confluence of problems, including currency devaluations in South America and sharply lower power prices in the United States and Britain, left it without enough cash to meet loan obligations coming due in the next year.
The bond-exchange offer is one of the key steps in AES's efforts to extend bank-loan repayments due next year and conserve its cash as it tries to retool its business operations worldwide.
At the end of the week, it will be up to AES's bank lenders, led by Citigroup Inc., to decide whether to accept the bond-exchange offers in hand or to seek another extension, said Lasan Johong, an energy analyst with Blaylock & Partners LP, a New York City investment-banking firm. The bank lenders would also get a higher interest rate in return for extending their repayment deadlines to 2005. Johong owns AES shares and has a "buy" recommendation on the stock.
The 80 percent commitment target would be in sight if the two issues were lumped together, an approach the banks might well accept, Johong said. A spokesman for Citigroup said the firm had no comment on the status of the AES refinancing effort.
AES had extended the bond-exchange deadline once before, while also sweetening the offer with a higher upfront cash payment. Johong said he understands that won't happen a second time. "There is no way the company is going to offer more," he said. AES officials would not comment on the refinancing.
If the refinancing hurdle is cleared, the company's outlook would "dramatically improve," Johong said.