To protect its customers and ensure continued progress in restoring power and gas service to New Orleans after Hurricane Katrina, Entergy Corporation announced that its New Orleans subsidiary - Entergy New Orleans, Inc. (Entergy New Orleans) - has filed a voluntary petition for reorganization under Chapter 11 of the U.S. Bankruptcy Code.
Simultaneous with this filing, Entergy New Orleans filed a motion with the Court for "debtor-in-possession" financing that contemplates Entergy Corporation making loans up to $200 million to Entergy New Orleans to address Entergy New Orleans' current liquidity crisis. The petition also requests that up to $150 million of these loans be approved on an interim basis. These funds will enable Entergy New Orleans to meet its near-term obligations, including employee wages and benefits, payments under power purchase and gas supply agreements, and its current efforts to repair and restore the facilities needed to serve its electric and gas customers.
Entergy Corporation trusts that the bankruptcy court will act swiftly to approve its debtor-in-possession financing for Entergy New Orleans. Entergy New Orleans, which provides electric and natural gas service to customers within the city of New Orleans, is the smallest of Entergy's five utility companies and represented about 7 percent of the consolidated revenues and 3 percent of its consolidated earnings in 2004. Neither Entergy Corporation nor any of Entergy's other utility and non-utility subsidiaries were included in the bankruptcy filing.
"We took this action after careful review of the various options available to preserve Entergy New Orleans' business over the near- and long-term" said Dan Packer, Entergy New Orleans' chairman and chief executive officer. "Due to our parent company's financial support, we can focus on the city's reconstruction and rebirth, as those restoration efforts continue today."
This filing also is intended to address the very legitimate concern expressed recently in a letter by U.S. Senators Mary Landrieu and David Vitter from Louisiana to President Bush that the potential bankruptcy of Entergy New Orleans would stall or cease restoration efforts in the City as a result of creditor disputes that could arise in such a filing. In making the filing for debtor-in-possession financing, it is Entergy's hope and desire that Entergy New Orleans will be able to continue its restoration efforts for the immediate future. The Court has set this petition and motion for hearing on Monday, September 26.
As the City Council of New Orleans stated in a letter of support to Entergy Chief Executive Officer J. Wayne Leonard this week, any long-term solution, that provides for a financially viable utility at Entergy New Orleans and protects customers from the massive restoration costs they can ill afford to pay, must involve a substantial federal financial commitment.
In a related action, a bill was introduced by Senators Landrieu and Vitter in the U.S. Senate on September 22 that could provide $250 billion of financial aid to Louisiana, of which $2.5 billion was earmarked to cover restoration costs of in-state utilities, including Entergy's Louisiana subsidiaries.
Federal resources, in addition to reimbursement of certain costs covered by insurance, are critical to restoring the system and restoring Entergy New Orleans' financial health. Entergy is working with public officials at the federal, state and local levels to try to secure vital government assistance.
Entergy also announced it had taken steps in advance of this bankruptcy filing by Entergy New Orleans to mitigate any effects of the filing on the parent and its financially stronger subsidiaries. Prior to the Entergy New Orleans' bankruptcy filing, Entergy obtained amendments to the $2 billion bank revolving credit facility and other bank facilities to eliminate the bankruptcy of Entergy New Orleans as an Event of Default under the terms of those bank agreements. Therefore, this bankruptcy filing by Entergy New Orleans will not trigger a default under these bank facilities or other financing obligations of Entergy and subsidiaries that are not party to this bankruptcy filing.