Washington Group International facing financial difficulties

A stock analyst for D.A. Davidson says Washington Group International, the nation's fourth-largest construction firm, appears headed for bankruptcy reorganization.

"When you're missing interest payments, it's a sign of serious problems," said John Rogers, an analyst in Davidson's Lake Oswego, Ore., office.

"More recently the company has defaulted on a loan payment, which we believe suggests a bankruptcy filing is imminent and the prospects for a cash infusion dim," Rogers wrote in a report late Thursday.

In the report, Rogers advised the company's shareholders to sell their Washington stock, which trades under the symbol WNG. The stock closed at $1.14 on Friday, although it traded as low as 91 cents earlier in the week.

"… despite the severe drop in share price over the past several weeks, we would recommend investors sell the stock even at current price levels," Rogers wrote in downgrading the stock to a sell.

Washington's troubles surfaced in early March when company announced it faced a "severe liquidity crisis" because of losses that accrued after Washington bought a division of Raytheon, the huge defense contractor and maker of the Patriot missile. Washington Group, part of billionaire Dennis Washington's construction empire, claims Raytheon misled it about debts owed by that division, debts that could run as high as $700 million.

Washington's stock nose-dived on the announcement, falling from $8 per share to $1.65. It rebounded to nearly $3 over the next two weeks, as problems between the company and Raytheon played out in the press, but has since slid below $1.

Washington, headquartered in Boise and separate from the Washington Corp. group of companies located in Missoula, has sued Raytheon in state court in Idaho. The suit claims that Raytheon hid about $700 million in losses on projects that were part of the deal between the two companies. Washington paid Raytheon $53 million in cash and assumed liability for about $450 million in debt when it purchased the engineering and construction arm of Raytheon in July 2000.

Since disclosing the dispute, Washington has bailed out of several projects it had assumed from Raytheon, forcing that company to pick up the pieces. Although Washington has since announced a number of new construction contracts, Rogers believes Washington will have trouble luring more business.

"We believe the company's bonding capacity has been effectively eliminated, which will prevent the company from winning new awards," Rogers wrote in his report.

Rogers said given the company's lack of cash, Washington will have a hard time convincing potential customers that it can finish jobs. Rogers' report recognizes the possibility that Washington might prevail in its lawsuit against Raytheon, but suggests that such a recovery might be too late for stockholders.

"Although existing WNG shareholders would share in a recovery from Raytheon if Washington's claims were upheld, given the potential time lag before collecting a recovery and the exposure to Washington if the company fails to complete current projects, we believe equity investors are likely to be left with nothing," Rogers wrote.

Washington's vice president for communications, Brent Brandon, did not return a Missoulian phone call Friday.

Reporter Michael Moore can be reached at 523-5252 or at mmoore@missoulian.com.

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