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Ameren Prices Senior Notes

AEE EXC

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Ameren Corporation’s (AEE - Analyst Report) subsidiary Ameren Illinois Company announced that it has priced $400 million of 2.70% senior secured notes due in 2022.

Ameren Corporation plans to utilize the net proceeds of this offering along with other surplus cash primarily to redeem its outstanding 9.75% and 6.25% senior secured notes worth $450 million due in 2018. In addition, the company also intends to use the remaining part of this issue to repurchase 5.50% debt maturing in 2014 with aggregate principal amount of $51.1 million, along with payment of related interest expenses and fees.    

It is a common practice among the utility companies to issue new debts to redeem the old ones while extending the repayment tenure. In June 2012, Ameren’s peer Exelon Corporation (EXC - Analyst Report) sold $775 million of senior notes in two tranches and utilized the proceeds for general corporate purposes.

Prior to this offering, Ameren offered $250 million of its 6.30% Series I senior notes with fall due in 2020. The company employed the proceeds to repay its outstanding short-term debt.
    
Recently, Ameren released its second-quarter 2012 results. As of June 30, 2012, the company’s net long-term debt remained flat at $6.7 billion compared with the year-end 2011 figure. Interest expenses in second-quarter 2012 rose by $8 million year over year to $112 million mainly due to higher rate of interest. With the issue of new debts with lower interest rate, the company’s interest expense is expected to fall in the coming quarters. The long-term debt-to-equity ratio of Ameren at the end of second-quarter 2012 was 86.7% much lower than its peer group ratio of 146.5%.

At its second-quarter 2012 earnings call, Ameren increased its full-year 2012 pro forma earnings guidance in the range of $2.25 – $2.55 per share compared with the prior band of $2.20 – $2.50 per share.  As per Zacks Consensus Estimates, the company’s full-year 2012 earnings are expected to be $2.40 per share.
 
We believe that Ameren’s regulated electric power portfolio in the Midwest generates stable and growing earnings flow in the upcoming quarters due to continuous cost curtailment, rate relief, improvement in plant operations and installation of lower emission producing equipments at its generation assets.

However, we are concerned with Ameren’s over-dependence on its coal-based generation assets, pending regulatory cases and impairment charges for Ameren Energy Resources Generating Company's Duck Creek Energy Center.

Ameren Corporation currently retains a Zacks #3 Rank, which translates into a short-term Hold rating.

St. Louis, Missouri-based Ameren Corporation is a holding company, engaged in the generation and distribution of electricity and natural gas and serves residential, commercial, industrial and wholesale end-markets in Missouri and Illinois.
 

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