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PSNH Chapter 11 Sends Message to Investors, But Small Impact Expected

January 29, 1988

NEW YORK (AP) _ Utilities should feel little immediate impact from Thursday’s bankruptcy filing by the lead owner of the Seabrook nuclear power plant, but the action could affect the industry’s future ability to borrow money, analysts said.

Public Service Company of New Hampshire’s filing for Chapter 11 protection from creditors had been expected for some time by many industry watchers, who closely followed the utility’s financial problems.

Standard & Poor’s Corp., the Wall Street credit rating firm, already had rated Public Service’s bonds as a speculative investment before the filing.

As such, the filing was no shock, and the unique circumstances that forced the utility into bankruptcy court reorganization were unlikely to spark investors to shun utility bonds in favor of other securities, said Daniel Scotto of the investment firm L.F. Rothschild & Co.

At its worst, the action could send a ″dangerous″ message to state utility regulators that it was acceptable to exact financial concessions from bondholders in order to protect ratepayers, Scotto said.

William Gross, head of fixed-income investments at Pacific Investment Management Inc. in Newport Beach, Calif., agreed.

″There’s been a sort of informal assumption over the years that utilities can’t go bankrupt since they’re a government regulated monopoly, so to speak,″ he said.

″This sort of sends a message to investors the utility industry is not impervious to bankruptcies, much like industrial corporations. ... To that extent I wouldn’t call it a shock wave, but would call it a slap in the face to bond investors to wake up and consider each situation on its own.″

Public Service has been running out of money because of its $2.1 billion investment in the stalled $5 billion Seabrook nuclear plant.

The plant is completed but unlicensed because of evacuation planning obstacles, and state law prohibits Public Service from charging ratepayers for Seabrook before it operates commercially.

The utility defaulted on its bond payments in October, and the final blow came Tuesday when the New Hampshire Supreme Court refused to strike down the law blocking Public Service from getting an emergency rate hike to pay Seabrook-related costs.

If investors in utility bonds suffered a crisis of confidence in the industry because of the Seabrook debacle, they might demand higher returns - interest rates - in exchange for their investment.

But Gross said that right now Public Service’s troubles were not indicative of the utility industry as a whole, and the outlook for utility bonds would not change unless another major utility unexpectedly took similar action.

″The first one’s a slap in the face, the second one probably comes with a closed fist and results in a knockout,″ said Gross. ″But for now I think the market recovers.″

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