05/14 14:46 Washington Group Files for Bankruptcy Protection (Update3) By Jonathan Berr

Boise, Idaho, May 14 (Bloomberg) -- Washington Group International Inc. filed for Chapter 11 bankruptcy protection while awaiting arbitration on a $400 million refund for a business it bought from Raytheon Co.

The No. 4 U.S. construction company accused Raytheon of hiding cost overruns in the engineering and construction business acquired in July. It's the second bankruptcy filing in five years for the former Morrison Knudsen Corp. and follows the company's default last month on a loan payment.

Washington Group's filing in U.S. Bankruptcy Court in Reno, Nevada, is the 14th this year by a company with assets of more than $1 billion, according to Web site bankruptcydata.com. The other 13 put more than $59.13 billion in assets under bankruptcy protection, including PG&E Corp.'s Pacific Gas & Electric with $24.18 billion. Washington Group said it will operate normally.

``Management will remain in place, daily operations will continue as usual, our employees will be paid, and this business will move forward,'' Washington Group President Stephen Hanks said in a statement.

Washington Group, based in Boise, Idaho, sued Raytheon in March, accusing the No. 3 defense contractor of fraud and seeking to cancel the sale. Raytheon, which has denied the allegations, said today it doesn't expect the bankruptcy filing to have any effect on cash flow in 2001.

Idaho Judge Deborah Bail ruled last month that an arbitrator would decide whether Lexington, Massachusetts-based Raytheon must give back $400 million. The Securities and Exchange Commission is investigating the sale, Raytheon said earlier this month.

Guaranteed Completion

Washington Group bought Raytheon's Engineers & Constructors unit in July for $53 million and assumed $450 million in liabilities.

About 50 construction projects were under way when Raytheon sold the unit. Washington Group walked away from building two Massachusetts power plants inherited in the sale, and now is in talks with Raytheon about another three projects that also may abandoned, Hanks said.

Washington Group had $334 million in assets and long-term debt of $693.8 million as of Sept. 1, according to the latest filing with the Securities and Exchange Commission. The company hasn't made a regulatory filing since.

Raytheon took a first-quarter charge of $221 million for costs of completing work on the projects halted by Washington Group.

Trading in Washington Group shares, which have fallen 87 percent this year, was halted today. The company has asked the New York Stock Exchange to delist its shares, Hanks said.

Some $300 million in Washington Group bonds due in 2010 were bid at about 12 cents on the dollar. Earlier this year, they had traded for more than 80 cents.

Hanks doesn't expect shareholders, including its chief executive and largest shareholder, Dennis Washington, to be able to recover their money. Washington, a billionaire entrepreneur, is in talks with Washington Group's banks to lend the company money, Hanks said.

Dennis Washington

``Dennis made a very generous offer to the company,'' Hanks said in an interview. ``They are talking and continue to talk today.''

Hanks declined to elaborate further. Details of the company's bankruptcy filing, including the latest assets and liabilities, will be released in the next few weeks, he said.

Dennis Washington bought Morrison Knudsen, builder of the Hoover Dam and the Trans-Alaska Pipeline, for $221 million after it filed for bankruptcy protection in 1996.

Dennis Washington also owns mining, shipping and railroad interests through closely held Washington Cos. Washington Group is his only publicly traded company.

In Default

Washington Group defaulted on a $1 million loan payment because of the cost overruns at the Engineers & Constructors unit, according to a person familiar with the matter. The payment, due April 7, was one of four required this year as part of a $1 billion loan arranged by Credit Suisse First Boston. The default gives lenders the right to demand early repayment of the entire loan.

Credit Suisse First Boston arranged new financing that gives Washington Group cash to pay its bills during bankruptcy proceedings, Washington Group said. Washington Group expects the loan proceeds to be between $200 million and $350 million, Hanks said.

Washington Group hopes to use some of the payments from the loan to help meet payments on new bonds, Hanks said. This is critical for the company because it needs to be able to issue bonds to bid on new projects, said John Rogers, an analyst with D.A. Davidson & Co., which has a ``sell'' rating on the shares.

``That's why they have to get themselves out of bankruptcy fairly quickly,'' he said.

Raytheon's widely traded Class B shares fell 7 cents to $29.34 in midafternoon trading.

-- Guy Daley (guydaley1@netzero.net), May 14, 2001