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NRG Energy Redeems Notes, Transformation Plan On Course

Zacks

NRG Energy Inc. NRG announced that it has redeemed all its outstanding 6.25% Senior Notes due 2022. The aggregate principal amount of the redeemed notes is $485.2 million. The redemption of debt is part of balance sheet deleveraging, under its Transformation Plan.

Under its Transformation Plan launched in 2017, the company aims to lower its net debt from nearly $18 billion to $6 billion. The plan to strengthen its balance sheet will lower interest burden over the long run and boost margins of the company.

The debt-reduction initiatives of the company, amid the rising interest rate scenario, are appreciable. Rising interest rates hurt the utilities, which always look for external funding to carry on their capital projects. Interest rates have increased from the near-zero level and Fed might increase the rate further, given the improvement in the economy persists.

Steps Taken to Lower Interest Burden

NRG Energy issued $575 million notes during the second quarter. Moreover, it repurchased $89 million of outstanding debt and utilized the balance to redeem the 2022 notes, which will result in annual interest savings of $20 million.

In addition, NRG Energy also targeted $640 million in debt reduction. The cash flow generating capacity of the company coupled with proceeds from non-core asset sales are helping the company to refinance the redemption.

Debt Levels High but Improving

The debt-to-capital ratio of NRG Energy at the end of the second quarter stands at 87.79%, much higher than its industry’s average of 49.47%. The company’s initiative to lower debts will surely bring down this ratio near the industry average.

Courtesy of the positive initiatives undertaken by the company, NRG Energy’s interest outlay was $369 million in the first six months of 2018, reflecting a 21.7% decline from the year-ago levels.

Price Movement

In the past 30 days, shares of NRG Energy have returned 1.9%, outperforming its industry’s growth of 0.6%.



Zacks Rank & Key Picks

NRG Energy currently has a Zacks Rank #4 (Sell). Some better-ranked stocks from the same industry are Ameren Corporation AEE, Edison International EIX and Xcel Energy XEL, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Ameren Corporation, Edison International and Xcel Energy delivered average positive surprises of 9.76%, 4.28% and 6.38%, respectively, in the last four quarters. Ameren Corporation, Edison International and Xcel Energy’s Zacks Consensus Estimate for 2018 has moved up 1.2%, 1.2% and 0.4%, respectively, over the past 60 days.

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