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PUBLIC SERVICE CO. OF NEW MEXICO 'BB' SR. DEBT ON FITCHALERT NEGATIVE -- FITCH FINANCIAL WIRE --

 NEW YORK, Jan. 29 /PRNewswire/ -- Public Service Co. of New Mexico's BB' first mortgage bonds, B+' lease obligation bonds, B+' secured facility bonds, and B+' preferred stock are placed on FitchAlert with negative implications.
 The action reflects increased financial risk associated with the company's restructuring announced Jan. 11. In an 8K filed with the SEC on Jan. 26, the company stated that material losses associated with the restructuring could cause a retained earnings deficit, triggering a material adverse change clause in its revolving crediting agreement and preventing it from paying a preferred dividend. The company will attempt to avoid a retained earnings deficit with a quasi-reorganization of common equity accounts. However, its ability to do so is uncertain and will not be clarified until the company announces year-end results on Feb. 3.
 The company's revolving credit facility could prevent borrowing in the event of a material adverse change in the company's financial condition. The revolver also limits the company's debt to capitalization ratio to 70 percent. Additionally, state law may not permit a company with a retained earnings deficit to pay preferred dividends. The present value of sale and leaseback transaction lease payments is currently estimated at $670.5 million. The company's retained earnings balance at Sept. 30, 1992 was $83.2 million. The debt to total capitalization ratio, including sale-lease back debt was 66 percent as of the third quarter.
 The financial impact of the restructuring plan depends on bank agreements, the ultimate sale price for assets, regulatory treatment and use of proceeds. If the company's banks remain supportive and flexible with regard to restrictive covenants, the company could emerge from the restructuring with a competitive cost structure. However, if lenders are not flexible, the company's liquidity could be substantially impaired.
 On Jan. 12, the utility announced a plan to sell assets and reduce costs and rates that would better position it to meet the challenge of retail wheeling. Retail wheeling would allow any customer to buy power from a provider other than a local utility. Senator Tom Wray will introduce a bill mandating retail wheeling in New Mexico sometime in February or March.
 The company plans to file a restructuring plan in July with the New Mexico Public Service Commission calling for the sale of all or part of the company's interest in the Palo Verde nuclear plant, a rate reduction, and rate treatment for some of the Palo Verde plant costs. A writeoff associated with the sale of Palo Verde 3 and the leased portions of units 1 and 2 could easily cause a retained earnings deficit. It is unlikely that Public Service of New Mexico will recover its interest in Palo Verde 3 at its current book value of $290.8 million. Nor is it likely that a buyer would assume the uneconomical lease terms for units 1 and 2. The sale leaseback was accomplished at terms which drove the original costs of units 1 and 2 to $3,000 per kilowatt (kw) compared to $2,200 per kw for unit 3.
 -0- 1/29/93
 /CONTACT: Josephine Zeppieri, CFA of Fitch, 212-908-0575/
 (PNM)


CO: Public Service of New Mexico ST: New Mexico IN: UTI SU: RTG

WB -- NY073 -- 0873 01/29/93 15:42 EST
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Date:Jan 29, 1993
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