Blade failures on three KVS-33 turbines, one in Texas and two in Spain, as well as news that Kenetech's securities ratings were being downgraded by financial houses, slammed the already troubled company last month, forcing a management shake-up and a down-sizing.
In December, the company was pulling most personnel out of its San Francisco headquarters, reducing two floors of offices to one and leaving only financial and legal teams at the Sansome Street address. Other staff were to relocate to Livermore, where production of the KVS-33 turbine had been halted, treasurer Bill Klitgaard confirmed on December 18. The firm's backlog still stood at some 1900 turbines. Klitgaard predicted Kenetech would ship 550 turbines in total in 1995, compared with 1000 predicted by analysts. He would not speculate on how many it would ship this year.
The company's Texas facility, in Waco, also stood still in mid December. "We're not going to go with that for a while," said Klitgaard. Kenetech has not decided what will be manufactured in Texas. Pressed about the new KVS-45 technology, he said, "Oh, it's definitely notÉ being abandoned." Yet he did not rule that out, stressing the machine has not completed testing and no final decision has been made. Regarding Chapter 11, or bankruptcy, he said, "I think it would be stupid for [vendors] to force us into Chapter 11É We're trying to work with our vendors as appropriate."
A major shake-up at Kenetech, which owns Kenetech Windpower, known formerly as US Windpower Inc, had been expected ever since Richard Saunders, 69, was brought in as a turn-around specialist in November. He has succeeded Alderson as CEO. Auditors have evaluated the company at $450-500 million, but some say it may be worth only 60-70% of that -- about $350 million. Such an "impaired value" implies all common stock and some of the preferred is worthless, said analysts. "If they sell assets and they can't build wind farms, bankruptcy is a certainty," said one analyst. "If they can't sell assets, it's going to be very nip and tuck."
Some observers were surprised by the speed of the tumble. As recently as September 1, Kenetech, which then employed 800, had fired 115 or 12% of its workforce. More dismissals in mid December were bringing this figure towards 50% and its stock was hovering at about $1.50, down from $16.75 earlier last year. Even in late November, it had been trading at three times that.
The lay-offs, announced to most staff two days after the shake-up on December 12, hit Livermore hardest. Extra security officers were brought in to prevent disturbances. That afternoon, a fortnight before Christmas, a line of people were seen leaving, their belongings in boxes. Among those ousted, reportedly, were Maury Miller, chief financial officer during the firm's most troubled time, spokesman Bud Grebey, Hap Ellis, Chris Herter, and development engineers. Alderson, 48, remained as a "non-executive" chairman, although he was no longer to play a part in day-to-day operations.
Kenetech hired Smith Barney Inc to "explore all alternatives possible to the company to enhance stock holder value." On Wall Street this is financial parlance signalling the firm is for sale. Klitgaard also confirmed selling is a major possibility but, as of December 15, nothing was imminent. He would not identify the assets for sale, but observers speculate the most valuable are the co-generation unit, the construction company, some of its unbuilt contracts, the maintenance and servicing division, and a backlog of 500 MW in contracts. Of the about 1000 MW under California's beleaguered BRPU auction of contracts only some 200-250 MW are thought to be solid.
Kenetech's earnings and stock have plunged as the market has faltered and troubles have continued to plague its KVS-33 technology. It recently had to temporarily suspend operations at Tarifa, Spain, when three blades flew off two KVS-33 turbines. Only ten of the 90 Tarifa turbines were operating by December 15, though all should be running in January. Blades also failed on one turbine in Texas. Even so, Klitgaard said Kenetech was not ready to divulge what caused the failures: "It looks to be not necessarily in the blade."
The company was hit hard in early December when Moody's Investors Service announced it had lowered its securities ratings, reflecting "expectations of further deterioration in the company's operating cash flow, liquidity, and competitive position." Kenetech's difficulties in implementing its most recent business plan will severely diminish its ability to meet financial obligations, warned Moody's.
Standard & Poor's also lowered its rating of the firm's $220 million in outstanding senior secured debt and preferred stock. S&P cautioned that Kenetech's failures in Spain and Texas raise serious questions about its basic turbine, could seriously damage its market reputation and may make it difficult, if not impossible, to raise third-party debt or equity financing for future projects or even current general corporate purposes. Kenetech has little financial flexibility, and a liquidity crisis is possible in the first quarter of 1996, said S&P.