Columbia Gas In Urgent Plea For Refinancing

Columbia Gas System Inc. said it may face bankruptcy proceedings if it fails to restructure bank credit lines and gas supply contracts.

Officials at the Wilmington, Del.-based company met Wednesday with bankers from Morgan Guaranty Trust Co., seeking to renegotiate Columbia's credit lines on revised terms.

Morgan leads a group of about 15 banks that have provided $1.25 billion in revolving credit lines to the company. About half of that amount has been drawn.

A portion of the credit lines backs $250 million of Columbia's commercial paper.

Columbia wants to make sure that the banks will stand behind their commitments if the company is unable to roll over the commercial paper as it comes due.

MAC Clause Looms

A Columbia Gas spokesman said the company was concerned that the Morgan-led bank group might pull the credit by invoking what's known as a MAC, or material adverse change, clause in the credit agreement. Morgan officials refused to comment on the situation.

The full extent of the company's financial woes came to light Wednesday when Columbia announced that losses stemming from gas purchase contracts could exceed $1 billion.

A "substantial portion" of these losses, which are much larger than previously projected, are expected to be charged against second-quarter earnings, the company said.

Years-Old Contracts Hurt

Columbia's pipeline subsidiary entered into high-cost gas purchase contracts years ago, when supplies were short and regulatory conditions were different.

Under the purchase contracts, some of the gas is priced as high as $6.70 per thousand cubic feet -- far above the current spot price of $1.30. The company lifted projected losses on the contracts after concluding that spot gas prices are likely to remain depressed. Columbia said it is now trying to restructure all of its high-cost supply contracts "to make them market sensitive."

As part of the effort, Columbia Transmission, the pipeline subsidiary, plans to offer its suppliers up to $600 million in debt securities as compensation for the restructured contracts.

A Columbia spokesman said it has not yet been determined exactly what type of debt would be offered, or whether it would be subordinate to the bank debt.

Columbia said that it suspended payment of common stock dividends Wednesday "in order to enhance [the company's] potential for continued access to bank credit."

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