SPR chief: Deal didn't bring dilution

When Sierra Pacific Resources last week said it would swap 13 million newly issued shares for $105 million in debt, its top executive was quick to reassure investors that earnings won't be diluted.

They probably needed the reassurance.

Reno-based Sierra Pacific Resources had about 102 million shares outstanding before the last week's swap.

The addition of 13 million shares can't help but divvy up the company's earnings.

But Walter Higgins, chairman, president and chief executive officer of Sierra Pacific Resources, makes a case that current shareholders will actually be the beneficiaries of the swap.

Here's his reasoning: Cash-strapped Sierra Pacific Resources badly needs to reduce its debt load and its interest payments.

When it exchanged stock for debt last week, it made big strides in that direction.

The debt involved in last week's deal was an unusual breed known as "Premium Income Equity Securities" PIES, for short.

The PIES carry a 9 percent interest rate hefty by today's standards and Sierra Pacific Resources is required to convert the debt into stock in 2005.

Lately, however, the PIES have been trading at $35, which is about a 30 percent discount to their face value.

By bringing in 30 percent of the PIES nearly three years early, Higgins said, the company will reduce its interest costs by about $9.4 million annually.

That's money that will flow into earnings, reducing the effects of the 13 million in new shares.

For a company that's short of cash, $9.4 million a year is helpful.

Besides, Higgins noted, the terms of the PIES would have required the company to issue 7.6 million new shares in 2005 anyway.

"The dilution will be substantially less than 13 percent," he said.

At the same time, the swap gets $102 million in debt off the company's balance sheet at a time when creditors worry about Sierra Pacific Resources' ability to repay everything it owes.

Standard & Poors Rating Services, for instance, said it's keeping Sierra Pacific on its credit watch with negative implications even after last week's announcement.

The credit-rating agency said it worries about the company's ability to refinance $200 million in debt that comes due in April.

Higgins said the company expects to deal with that overhanging debt well before it comes due.

Higgins said, too, the company is exploring other ways to reduce its debt load and improve its liquidity and will announce them promptly as they occur.

He was adamant, however, in contending that the company won't swap any more equity for debt.

Sierra Pacific Resources owns Sierra Pacific Power, which serves northern Nevada, and Nevada Power in the Las Vegas area.