Dynegy Issues $850M Notes To Refinance Debt & Repay Loan

Dynegy Inc. (NYSE:DYN) recently concluded the offering of senior notes worth $850 million, with an interest rate of 8.125%, due 2026.

Per the offering, Dynegy will use the proceeds from the senior notes offering as well as yields from the sale of Troy and Armstrong facilities in July, and cash in hand worth $480 and $200 million, respectively. This will be utilized to repay a principal amount of approximately $1.25 billion of its outstanding senior notes, carrying interest rate of 6.75%, due 2019.

The company will also pay in advance part of its outstanding senior secured term loan worth $200 million, and use the remainder of the proceeds for the fulfillment of payment obligations in relation with fees and corporate purpose expenditure.

Ongoing Debt Reduction

Dynegy has been working on its strategy to strengthen balance sheet and monetize non-core assets, while using the proceeds to fund growth projects and utilize the excess toward debt lowering purposes. In February 2017, the company completed The Illinois Power Holdings (Genco) financial restructuring program and repaid debts worth $640 million.

Going forward, the company also has plans to sell a certain portion of assets in Southeastern New England subject to federal approvals. Proceeds from the sales are also to be allocated toward debt reduction purposes.

Our View

The company exited the second quarter with approximately $1.4 billion in liquidity. Even with the debt reduction initiatives, the debt-to-capital ratio of the company is presently 79.16%, much higher than the S&P 500 level of 41.80%.

Given the ongoing increase in interest rate, the rising debt levels can adversely impact the performance of the company. We believe Dynegy should continue with debt restructuring initiatives to improve capital structure and create long-term value for shareholders.

Price Movement

Dynegy has underperformed the industry in the last twelve months. The company’s shares lost 21.5% against the industry’s gain of 8.2%.

The price underperformance can be attributed to the earnings volatility that Dynegy has been facing for quite some time now, due to volatility in supply, fuel price volatility, interest rates, and other seasonal factors.

Stocks to Consider

Dynegy currently carries a Zacks Rank #3 (Hold).

Investors can consider better-ranked stocks like NextEra Energy, Inc. (NYSE:NEE) , Ameren Corporation (NYSE:AEE) and CenterPoint Energy, Inc. (NYSE:CNP) from the same industry. All these stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

NextEra posted second-quarter 2017 earnings from continuing operations of $1.86 per share, beating the Zacks Consensus Estimate of $1.76 per share by 5.68%. The company’s 2017 estimates increased by 5 cents to $6.70 per share in the last 90 days.

Ameren posted second-quarter 2017 earnings from continuing operations of 79 cents per share, beating the Zacks Consensus Estimate of 69 cents by 14.49%. The company’s 2017 estimates increased by 3 cents to $2.80 per share in the last 90 days.

CenterPoint Energy posted second-quarter 2017 earnings from operations of 29 cents per share, beating the Zacks Consensus Estimate of 21 cents per share by 38.10%. The company’s 2017 estimates increased by 3 cents to $1.31 per share in the last 90 days.

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