Columbia Gas Files for Chapter 11
In one of the biggest bankruptcy cases ever filed, Columbia Gas System Inc. sought protection from creditors on Wednesday after failing to reestablish credit lines with a bank group led by Morgan Guaranty Trust Co.
Columbia needed to reach an agreement with its banks by Wednesday, because it was quickly running out of cash.
Negotiations with the banks continued into Tuesday night. But it became clear that a successful resolution would not be reached in time, a Columbia Gas spokesman said.
|Out of Time and Money'
"We simply ran out of time and money," the spokesman added. A Morgan spokesman said the bank had no comment on the talks.
Columbia Gas, one of the nation's biggest suppliers of natural gas, disclosed in June that it faced losses of over $1 billion stemming from its obligations under expensive gas-purchase contracts.
The company warned at the time that it might be forced into bankruptcy proceedings if it failed to renegotiate the contracts and maintain its bank credit lines.
The banks had a powerful incentive to keep the company out of bankruptcy court, because most of their loans to Columbia Gas are subordinated to the company's public debt.
Morgan led two separate credit lines for Columbia, totaling $1.25 billion. The company has actually drawn $500 million of that amount.
Most of the loans outstanding - $400 million - were drawn on a $750 million subordinated revolving credit line. The remaining amount outstanding was drawn on a $500 million short-term revolver that is senior to the public debt.
Now that the company has filed under Chapter 11 of the bankruptcy code, there's a real question whether the banks will ever come out whole on the loans, said Christopher Baldwin, an analyst at Moody's Investors Service.
In addition to Morgan, lenders in the bank group include units of Manufacturers Hanover Corp., Bankers Trust New York Corp., Bank of New York Co., and Mellon Bank Corp.
Meanwhile, Columbia Gas is arranging for up to $400 million of debtor-in-possession financing to see it through the bankruptcy proceedings.
Manufacturers Hanover is leading the DIP financing.
The extent of Columbia Gas's problems, disclosed in a June 19 press release, surprised lenders.
Prior to the announcement, both Moody's and Standard & Poor's rated Columbia's public debt as investment grade.
Columbia Gas ranks as the 16th-largest public bankruptcy filing ever under Chapter 11, according to Bankruptcy Data Source, a Boston-based publication.
Table : Banks on the LineBorrower: Columbia Gas System
Total banklines: $1.25 billionBank loans $400 million drawnoutstanding: on revolving credit subordinated to public debt $100 million drawn on senior, short-term lineLead bank: Morgan GuarantyOther major Manufacturerslenders: Hanover Bankers Trust Mellon Bank Bank of New York