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Preparing to sell off more stock to raise cash

Kenetech Corp is planning an offering of $120 million in convertible preferred stock to fund new projects. The firm, one of only two public wind companies, is proposing to offer four million preferred shares. The Securities and Exchange Commission (SEC) should decide on whether the offering can proceed in about mid-May, says Kenetech's Bud Grebey.

In September, Kenetech made a successful initial public offering that raised about $90 million. Opening at $16.50, the price of its common stock has been as high as $29.50. Kenetech stock was hovering at about $21.75 on the Nasdaq exchange on April 14. When the registration papers were filed with the SEC on March 18, its stock was about $28.

According to the registration statement, Kenetech can redeem shares after three years, or they will automatically convert into Kenetech common stock at the end of four years. The proceedings of the offering are to be used to continue financing the development, manufacture and sale of the Model 33M-VS turbine. The offering is being underwritten by Merrill Lynch.

Kenetech's debt leverage, or debt to equity ratio, will be about 40% after the offering, compared with a ratio of 90% before last September's initial offering. The company has 13 executed contracts which should bring in revenues of about $500 million over the next three years, according to its registration papers.

On April 11, the highly regarded Moody's Investment Service assigned Kenetech's proposed offering a Single-B3 debt rating and upgraded its rating of the company's outstanding senior secured notes to Single-B2 from Single-B3. This is not impressive. A Triple-B or better is investment grade and anything below a Triple-B is considered a junk debt equivalent by Moody's -- in other words, a junk bond. Nonetheless, Moody's notes that the 1992 Energy Act supports wind energy and includes a ten year, $0.015//kWh tax credit and a five year accelerated depreciation schedule.

But the investment service also points out that Kenetech operates in a very competitive business environment that could subject its business plan to uncertainties. Moody's said that Kenetech does not have enough operating track record to ensure the Model 33M-VS will work as expected. Wind capacity factors are also low -- about 20% -- compared with fossil fuel plants, which are 75% to 95%, so that the 515 of executed contracts in fact represents 100 MW equivalent of fossil fuel, it said.

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