Tuesday, Aug. 12, 2003 | 11:07 a.m.
Shareholders of Sierra Pacific Resources, parent company of Nevada Power Co., approved on Monday a plan to allow the issuance of 42.7 million shares to cover the conversion of $300 million in convertible debt.
Of nearly 92 million votes cast, the company said about 59 million voted in favor of the proposal.
The new shares will dilute the value of existing stock. If the measure had failed, however, the company would have needed to pay cash to cover the gap between the estimated stock price when the notes were issued and the current stock price.
Convertible debt are financing notes that can be converted into stock in the issuing company.
Sierra Pacific stock this morning advanced 5.8 percent, trading at $4.95 per share, up 27 cents.
Sierra Pacific officials and analysts said such a cash expenditure would have further damaged the financially troubled company.
"Any time they can issue equity instead of paying out cash, that's a credit positive," said Jake Mercer, a utilities analyst with US Bancorp Piper Jaffray.
He agreed that the additional stock would damage stock value in the short term, but added that the long-term results would be better.
"At the end of the day, if (Sierra Pacific) can't come up with the money to pay, it's going to depress the company a lot more," Mercer said. "I would agree that shareholders are not necessarily happy, but it's one of those things that's the lesser of two evils."
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