Another corporate rescue up for action in Congress

There is a ring of deja vu to this story. A giant corporation suddenly finds itself in financial trouble. It owes billions of dollars to hundreds of thousands of creditors, many of them counting on the company for their income. The company says it will default on interest payments to them, tempting Congress to bail it out.

Last month US Rep. George Hansen (R) of Idaho introduced legislation to bail out the troubled Washington Public Power Supply System (WPPSS). Although the Hansen legislation is only in the subcommittee stage, one source close to the congressman says, ''It's the only solution that makes sense.'' This solution - if Mr. Hansen is correct in his math - would cost the taxpayers $1 billion. But he reasons it would save them a lot more in the future, since it would pay off WPPSS bonds which could cost the utility - or someone - $22 billion to $26 billion in principal and interest.

Hansen aides expect the legislation to move slowly at first, since there is not a lot of enthusiasm for another government bailout. The smell of a default on the bonds is in the air, however. And Wall Street, which sold the bonds to scores of investors, is sure to mount a campaign to find a solution.

The problem is this: WPPSS had borrowed $8 billion to finance the construction of five nuclear power plants. Because of declining electric demand, rising costs, questionable management practices, and public concern about the safety of nuclear energy, the projects were delayed. Costs skyrocketed. Last week WPPSS failed to pay the interest on $2.25 billion in bonds issued to fund power plants No. 4 and 5. The bonds to fund these two plants are backed by 88 utilities in the region, while the bonds for plants No. 1, 2, and 3 are indirectly backed by revenue from the federal Bonneville Power Administration (BPA). The power system has stopped construction on all but one of the plants and the utilities are challenging their obligations in court.

Chemical Bank, trustee for the bondholders, went to court last week to get a judge to declare the bonds for WPPSS Nos. 4 and 5 in default. The judge has yet to do so. If he does, says Robert Adler, a vice-president at Shearson/American Express, the bankruptcy clock will start ticking and the various parties will have 90 days to work out a solution. ''I find it hard to believe there won't be a solution somewhere along the line,'' says Mr. Adler, who has watched this drama develop over the past three years.

Wall Street analysts differ over what constitutes an equitable solution. Some involve the federal government; some don't.

One analyst who has closely followed the situation suggested that Congress guarantee the WPPSS bonds, much as it guaranteed the Lockheed and Chrysler bonds. He figured that would save $7 billion in interest payments, since federally guaranteed bonds would carry much lower interest rates. In addition, he noted, Congress could change the law so the Bonneville Power Administration, a quasi-governmental organization, could borrow money for other than transmission and conservation purposes. ''I think it can be worked out so it doesn't cost the taxpayers any money,'' he says.

But Alvan Markle, first vice-president at Butcher & Singer, believes that ''everyone in sight'' is ducking responsibility. He says, ''I have the feeling that when you go into a contract, you still have to honor that contract to the best of your ability.'' He believes the solution is for WPPSS to finish building the nuclear plants to earn the money to pay off the bonds. ''I don't believe in federal bailouts as a matter of principle,'' he says.

Washington Gov. John Spellman has tried to get all the participants together to hammer out an agreement. But one source notes, ''This has come apart repeatedly, apparently because of an absence of cooperation in the region.'' In fact, another analyst says current rumors that the parties will soon get together again ''are considered merely rumors.''

One of the biggest problems is getting the parties to agree on how costs should be shared. Some of the 88 utilities maintain that since their projects are terminated, so are their cost responsibilities. WPPSS and BPA believe there are joint costs associated with building plants No. 1, 2, and 3. Until this issue is resolved, says one analyst, it's unlikely any deal will be worked out.

Thus, attention is now focused on Representative Hansen's proposed federal solution. He envisions bondholders receiving their money from three sources. First, the federal government will contribute ''not more than 20 percent,'' or about $1 billion to the plan; second, a portion will come from the 88 utilities increasing their rates by ''not more than 20 percent of their current firm rate''; and third, Bonneville Power would contribute $3 billion in contingency funds, money that Mr. Hansen's office claims the BPA has.

Whether it will commit the funds or raise new funds with higher rates is another matter. As Vickie Tilman and William Chew of Standard & Poor's noted in Credit Week this year, the electricity-intensive aluminum industry, a big Bonneville customer, ''is especially sensitive to increases in rates by BPA.'' But Mr. Chew notes that Bonneville can defer payments to the Treasury for the federal investment in the system and put the bondholders first.

Uncertainties surrounding the situation have prompted Standard & Poor's and Moody's to suspend ratings of the WPPSS bonds. Still, S&P has said that since BPA rates already suffice to pay debt service on the first three plants, it has ''an AA capacity to pay its obligations to the supply system.''

So far no Senate legislation has been introduced to resolve the stamp of sponsorship on a Senate bill to resolve the problem. But Hansen aides believe a sponsor or two will come forth. ''Once WPPSS is on its face,'' one says, ''people will begin to meet on this thing.''

In the meantime, notes Mr. Adler at Shearson, the municipal bond markets have become a lot more selective. ''Utility bonds in general have come under a greater amount of focus,'' he says, adding, ''This problem makes the higher-quality bonds look better.''

Mr. Markle at Butcher & Singer says the markets have absorbed the problems at WPPSS much better than they did New York City's default on bonds. ''This has been widely publicized, and it's no surprise. The market had digested and discounted the news, so I don't view it as a national calamity.''

Concern about the growth of the money supply continued to hound Wall Street last week and investors pulled back somewhat. For the week, the Dow Jones industrial average closed at 1,213.04, off 3.10 points.

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