Sierra Pacific stock plunges

Tuesday, Feb. 11, 2003 | 11:13 a.m.

SUN STAFF AND WIRE REPORTS

Shares of Sierra Pacific Resources, the owner of Nevada's two biggest utilities, fell as much as 28 percent this morning after the company said it's seeking to raise $250 million through the sale of convertible notes.

The shares were down 91 cents, or 20 percent, at $3.61 as of 11:45 a.m. in New York Stock Exchange composite trading. Earlier they fell as low as $3.25, the biggest one-day drop in 10 months.

Sierra Pacific plans to sell unsecured notes due 2010 through a private offering, it said in a statement Monday. Net proceeds will be used to redeem about $191 million of remaining principal on Sierra Pacific's floating-rate notes due April 20.

Investors are "concerned about dilution of the stock that would lower the value of their investment," said Raymond James & Associates analyst Jon Kyle Cartwright. "The other concern is that ultimately the terms of the convertible will be onerous enough to put even more pressure on the common stock."

Reno-based Sierra Pacific, like utilities in neighboring California, was stung by a 10-fold increase in wholesale power prices in the western United States in late 2000 and early 2001. The company has said it may have to declare bankruptcy if state regulators don't reverse a decision last March that barred the company from raising rates to recover $434 million in power purchases and fuel costs.

The company also plans to use bond-sale proceeds to buy U.S. government securities that will be pledged as security for the first five interest payments on the notes. Any remaining proceeds will be used for general purposes, the company said.

Craig Shere, equity analyst with Standard & Poors Investment Advisory Services, said the private placement of notes announced Monday is a negative for the company.

"It underscores the lack of confidence in the marketplace for the company, otherwise it would be through a public note," said Shere, who agreed the end result could be dilution of shares.

"Diluting shares ... tends not to sit well with shareholders," he said.

Sierra Pacific owns Nevada Power Co. in Las Vegas and Sierra Pacific Power Co. in Reno.

Sierra Pacific Resources on Monday reported a $39.5 million fourth-quarter loss because of milder weather and higher interest expenses.

The loss was 39 cents a share, which compared with net income of $5.8 million, or 6 cents, in the same period a year earlier, Sierra Pacific said. Revenue fell 14 percent to $630.8 million from $733 million.