CenterPoint Deep in Debt

CenterPoint Energy Inc. (CNP - Analyst Report) yesterday announced a follow-on public offering of 21 million shares of its common stock. In the offering the underwriters have an option to purchase 3.2 million shares to cover any overallotments.

The company plans to use the net proceeds from the offering for general corporate purposes, repayment of borrowings under its revolving credit facility and disbursing loans to its subsidiaries, including CenterPoint Energy Resources Corp., to fund its recent gas gathering project.

CenterPoint Energy Resources agreed to enter the project with indirect, wholly owned subsidiaries of EnCana Corp. (ECA - Analyst Report) and Royal Dutch Shell Plc (RDS.A - Analyst Report). According to the agreement, CenterPoint Energy will enlarge the capacity of the Haynesville Shale facility to gather and treat up to 700 million cubic feet per day (MMcf/day) of natural gas from its current capacity of about 100 MMcf/day.

The company’s weak balance sheet will not be put to further pressure through this earnings-dilutive issuance. As of now, CenterPoint has 365.4 million shares outstanding. Despite management’s efforts to improve the company’s financial position, the balance sheet position remains stretched, with the debt-to-capitalization ratio at a high 83.4% after the end of the first half of fiscal 2009. The company now has five times debt over equity and an interest coverage ratio of 2.1.

CenterPoint Energy is a domestic energy delivery company that includes electricity transmission and distribution, natural gas distribution and sales, interstate pipeline and gathering operations. They serve customers in Arkansas, Illinois, Iowa, Kansas, Louisiana, Minnesota, Mississippi, Missouri, Oklahoma, Texas and Wisconsin. We maintain our market Neutral recommendation on the stock.

Read the full analyst report on CNP

Read the full analyst report on ECA

Read the full analyst report on RDS.A