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NRG Energy (NRG) to Redeem $500M of 6.625% Senior Notes

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NRG Energy, Inc. (NRG - Free Report) announces plans to redeem $500 million of its 6.625% senior notes due 2027 on Oct 6, 2021. The price of the redemption is fixed at 103.313% of the principal amount, plus accrued and unpaid interest on the notes till the redemption date.

As the company will finance the redemption and its related costs from its funds under liquidity facilities, the process is contingent on the availability of the same. Currently, it has $1,230 million worth 6.625% senior notes due 2027 and this strategic move will reduce the outstanding debt. If the company can redeem the aforementioned senior notes, it will lower its annual interest burden by $33.1 million.

In August 2021, the utility announced plans to offer senior notes worth $1.1 billion due 2032 under its sustainability-linked bond framework to refinance its existing debt. Refinancing its high interest-bearing debt with low interest-bearing debts will allow the company to curb its capital servicing expenses that in turn, will improve profits.

Current Debt Position

While NRG Energy is continuously trying to slowly trim the proportion of debt in the capital mix, its long-term debt amounted to $8,712 million at the end of the June quarter, up from $8,691 million at 2020 end. However, its long-term debt to capital declined from 83.8% at the end of 2020 to 77.6% at the end of the second quarter of 2021. No doubt, the company’s debt is higher than the industry average but its transformational activities are generating enough funds to meet the current debt obligations.

The utility had liquidity worth $3.3 billion at the end of the second quarter. The company’s times interest earned ratio came in at 4.26 at the second-quarter-end. A ratio greater than one indicates that the utility will be able to meet its debt obligations in the near future without any difficulty.

Price Performance

Shares of NRG Energy have gained 17.4%, outperforming the industry’s rise of 1.7% in the past six months.

Six Months Price Performance

Zacks Investment Research
Image Source: Zacks Investment Research

Zacks Rank

Currently, the company has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Stocks to Consider

A few better-ranked utilities are Exelon Corporation (EXC - Free Report) , Otter Tail Corporation (OTTR - Free Report) and American States Water Company (AWR - Free Report) . While American States Water carries a Zacks Rank #2 (Buy), the other two flaunt a Zacks Rank #1 at present.

The Zacks Consensus Estimate for Exelon’s 2021 earnings has moved 1.1% north in the past 60 days. The company’s long-term (three-five years) earnings growth rate is pegged at 2.99%.

Otter Tail came up with an earnings surprise of 31.80%, on average, in the last four quarters. Its long-term earnings growth rate is pegged at 4.70%.

The Zacks Consensus Estimate for American States Water’s 2021 earnings has been revised 0.4% upward in the past 60 days. It came up with an earnings surprise of 4.35%, on average, in the trailing four quarters.