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Covanta Energy Files for Chap. 11

Reorganization: Plan includes an agreement to sell itself to investment firm KKR for $225 million.

April 02, 2002|From Times Staff and Wire Reports

Power provider Covanta Energy Corp., weighed down by disparate holdings such as the management contract for Anaheim's Arrowhead Pond, filed for bankruptcy protection Monday and agreed to be acquired after its reorganization for $225 million by investment firm Kohlberg Kravis Roberts & Co.

Covanta, which changed its name a year ago from Ogden Corp., also said it will have a difficult time seeking Wall Street financing both for its entertainment and aviation businesses and its primary energy and water operations, including municipal waste-to-energy facilities.

The Fairfield, N.J., company listed $3.28 billion in assets and $3.03 billion in debts in its Chapter 11 bankruptcy papers filed in Manhattan. The company couldn't meet loan obligations after it failed to sell unprofitable businesses, including the contracts to manage hockey arenas in Anaheim and Ottawa, Canada.

Representatives for both Anaheim and the company said the bankruptcy filing will have no effect on the city or on events at the Pond, home to the Anaheim Mighty Ducks professional hockey team.

"From our standpoint, it is business as usual for everyone at the Arrowhead Pond," said Tim Ryan, the arena's general manager. "The important thing is that we continue to book events for the near and the long-term. We're solidifying some contracts for the year 2006."

The company, through its Ogden Facility Management Inc. unit, guaranteed payments on debt securities the city issued a decade ago to build the arena. So far, ticket sales and other revenue have helped Ogden remain current on monthly interest bills averaging $500,000 and on the annual principal payment, which was $1.9 million in December, said John Nicoletti, an Anaheim spokesman.

In Canada, however, shareholders in the Ottawa Senators hockey team and the Corel Centre recently demanded that Covanta fulfill a promise to buy $105.5 million in securities, a condition of its 1999 contract to manage that building. Soon after entering that contract, Covanta directors decided to focus resources on the core energy and water operations and to sell the entertainment and aviation holdings.

"They made some bad investments that sucked up cash when they needed it," said Peter Rigby, credit analyst for Standard & Poor's.

Both Rigby and the company said the Sept. 11 terrorist attacks delayed the sale of an aviation-fueling business and that the collapse of Enron Corp. made it harder for all power producers to raise money.

The fiscal crisis in Argentina also foiled Covanta's effort to sell a casino and an exhibition center it owns in that country, the company said. But the biggest problem has been the obligations in Anaheim and Ottawa, said S&P's Scott Taylor. "Their banks just got tired of the whole thing."

A consortium of more than 20 banks, however, agreed to provide Covanta with $463 million in post-bankruptcy financing to help the company reorganize and sell itself.

The nonbinding agreement with a unit of Kohlberg Kravis provides that Covanta and its bank lenders will work exclusively with the investment firm for as long as 90 days, Covanta said. KKR would acquire Covanta after completing research and negotiating a definitive agreement. The acquisition would follow court approval of a reorganization plan.

Covanta said on Dec. 24 that it had limited cash available and was negotiating with bank lenders, causing its stock price to plummet 60%. The company blamed the cash crunch on delays in payment for power sold in California, as well as on its inability to sell its aviation and entertainment businesses.

A month ago, Covanta missed a $4.6-million payment on $248.7 million of bonds and said it was negotiating with creditors to restructure the debts.

Trading in Covanta shares was halted Monday on news of the bankruptcy filing. The stock last traded at 72 cents a share on the New York Stock Exchange.

Times staff writer James S. Granelli contributed to this report, and Bloomberg News was used in compiling it.

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