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NRG Energy (NRG) to Issue $1.1B Sustainability-Linked Bonds

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NRG Energy, Inc. (NRG - Free Report) plans to offer 3.875% senior unsecured notes worth $1.1 billion due Feb 15, 2032. These will be issued under its Sustainability-Linked Bond (SLB) framework and will be guaranteed by each of its subsidiaries.

Subject to customary closing conditions, the offering is likely to close on Aug 23, 2021. In case, the notes do not meet the sustainability target, it will cause a 25 basis point hike in the interest rate payable Aug 15, 2026 onward.

The utility has $1billion worth of 7.25% senior notes due 2026 and another $1.23 billion worth of 6.625% senior notes due 2027. Of these, the company plans to spend net proceeds from the current offering along with cash on hand and borrowings under one or more of its liquidity facilities to repurchase all its notes due 2026 and $355 million (part of $1.23 billion) worth notes due 2027. Some portion of the proceeds will be used in paying fees and expenses linked to these repurchases.

Prior to this, in December 2020, NRG Energy became the first North American company to issue SLB as it completed issuing senior secured first-lien notes worth $900 million. The proceeds were used in funding the Direct Energy acquisition.

Motive Behind the Move

The company is fully utilizing the low interest rate scenario and issuing new debts with low interest rates. It is utilizing the proceeds to repay its existing high-interest bearing old debts. This, in turn, will help it reduce its interest costs and boost margins.

Issuance of SLB will help the company pursue growth, achieve its climate-transition strategy and enhance the stakeholders' value. It aligns with NRG Energy’s business and financing commitments. It also creates a direct link between climate and funding strategies.

Emission Target

The company is continuously attempting to make its operations sustainable in nature. It also evaluates the existing resources as well as adopts the forward-looking technologies to meet its long-term carbon goals. On Sep 24, 2019, it announced greenhouse gas reduction goals and under this plan, the utility targets a 50% emission cut by 2025 and net-zero emissions by 2050 from its 2014 baseline.

Moreover, its planned sale of 4.8 Gigawatt (GW) fossil assets is on track to be completed in the fourth quarter of 2021. The company also announced the retirement of 1.6 GW or 55% of its PJM coal generation in 2022.

Transition in U.S. Electric Utility Space

With the whole world resorting to renewable energy, the U.S. utility industry is also shifting its focus to clean resources for electricity generation. Along with NRG Energy, other utilities like Xcel Energy (XEL - Free Report) , DTE Energy (DTE - Free Report) and Avista Corporation (AVA - Free Report) are tapping the opportunity to transition to cleaner energy for adopting a business strategy that is environmentally sustainable. These companies have a long-term plan in place to supply 100% clean energy to customers.

Zacks Rank & Price Performance

Currently, the company holds a Zacks Rank #4 (Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Shares of NRG Energy have gained 2.4%, underperforming the industry’s rise of 3.4% in the past six months.

Six-Months Price Performance

Zacks Investment Research
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