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Ameren's Focus on Debt Restructuring

AEE EXC

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Ameren Corporation’s (AEE - Analyst Report) subsidiary, Ameren Missouri, seeking to reduce the weighted average interest rate and enhance the maturity profile of its debt, issued tender offer for four series of outstanding senior secured notes.

Ameren Missouri has commenced a tender offer to purchase its outstanding 6.00% Senior Secured Notes due 2018, 6.70% Senior Secured Notes due 2019, 5.10% Senior Secured Notes due 2018, and 5.10% Senior Secured Notes due 2019 for an aggregate purchase price of up to $377 million. The tender offer is subject to the terms and conditions set forth in the Offer to Purchase, dated August 20, 2012. This will expire on September 19, unless extended or terminated earlier. Ameren Missouri also plans to conduct an underwritten public offering of its senior secured debt securities to be completed prior to the Expiration Date. Ameren Missouri plans to use a portion of the net proceeds from the Debt Offering, together with available cash, to fund the purchase of the Notes.

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 a 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 to the range of $2.25 – $2.55 per share from 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 will generate 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 equipment 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 #2 Rank, which translates into a short-term Buy rating. Over the longer run we have a Neutral recommendation on the stock. This is in line with its peers like the Illinois utility Exelon Corporation (EXC - Analyst Report).

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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