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EL PASO ELECTRIC LOWERED TO 'B' BY FITCH AS BANKRUPTCY LOOMS -- FITCH FINANCIAL WIRE --

 EL PASO ELECTRIC LOWERED TO 'B' BY FITCH AS BANKRUPTCY LOOMS
 -- FITCH FINANCIAL WIRE --
 NEW YORK, Dec. 12 /PRNewswire/ -- El Paso Electric Co.'s (ELPA) $111 million first mortgage bonds are lowered to 'B' from 'BB+' by Fitch. Bonds rated in this category are considered highly speculative. The company's $10.2 million 'CC' preferred stock rating reflects its continued non-paying status. All ratings remain on FitchAlert negative, where they were placed on Oct. 31, reflecting the uncertain potential for a turnaround and the possibility of a bankruptcy filing.
 A Chapter 11 bankruptcy filing continues to be likely. The company's future depends on negotiations with creditors which, if not successful, could cause the bankruptcy of the utility before its restructuring plan is in place. Despite the favorable impact of rate increases recently allowed in Texas, ELPA's financial profile is not anticipated to show meaningful improvement over the foreseeable future. Moreover, financial flexibility remains constricted and dependent upon continual long-term availability and usage of bank debt. Based upon rates currently in effect, the company is not expected to be able to meet new issuance tests for first mortgage bonds before early 1993.
 ELPA is working to extend or retire a $5.7 million loan borrowed under a credit facility for its independent fuel trust, which was due Dec. 1 and extended to Dec. 13. In addition, the company failed to provide by Dec. 1 a $31 million renewal letter of credit (LOC) to an owner/participant in the sale/leaseback of Palo Verde nuclear unit 2. This is an event of default under the facility lease unless the owner/participant grants a waiver. This default could also lead to other events of default under most of ELPA's financing and lease agreements, as well as the mortgage indenture and LOC agreements. Failure to renew the LOC gave an owner/participant the option to draw down the existing LOC at any time through Dec. 31. If this occurs, ELPA would have an immediate reimbursement obligation which management does not believe it could meet.
 Other LOC renewals for Palo Verde unit 2 and 3 sale/leasebacks are required later this month as part of the restructuring. The aggregate amount of all LOC's on behalf of owner/participants is approximately $300 million. If the LOCs are not drawn upon and the sale/leaseback waiver is obtained, ELPA says it would be able to meet its cash obligations through the expected date of its restructuring.
 ELPA's $150 million revolving credit facility has been extended to Dec. 16 from Nov. 30 and management expects its restructuring plan to be concluded by the middle of December. An important factor in the restructuring's success will be the outcome of a request for the Public Utility Commission of Texas (PUCT) to reconsider a recent rate decision. The PUCT is likely to take up the motion for rehearing on Dec. 17.
 The PUCT granted a $52 million rate increase on Nov. 11 for Palo Verde 3 consisting of $29 million cash in the first year, about $7 million as the fourth increase for units 1 and 2, and $16 million in phase-in deferrals. Unless the commission modifies its order so that the rate increase complies with Financial Accounting Standard 92 for units 1 and 2, the rate decision will require ELPA to take a $46.1 million pre-tax writeoff for phase-in deferrals through June 30, 1991, for these units.
 -0- 12/12/91
 /CONTACT: Anne F. Faber of Fitch, 212-908-0566/
 (ELPA) CO: El Paso Electric Co. ST: Texas IN: UTI SU: RTG


KD -- NY070 -- 2050 12/12/91 15:07 EST
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Date:Dec 12, 1991
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