Dynegy Inc. announced the closure of $180 million sale of its Lee Energy Facility to an affiliate of Rockland Capital, in Illinois. The deal has received approvals from the Federal Energy Regulatory Commission.
Per the aforementioned deal, proceeds generated will be utilized toward debt reduction purposes.
What Caused Dynegy’s Debt Levels to Rise?
Since 2013, Dynegy has increased scale and shifted portfolio mix, from a coal-based portfolio to a gas-based one, with the support of several acquisitions. All of these were funded through a significant portion of the company’s existing debt. This caused considerable stress to the company’s balance sheet structure.
Since then, the company has been working consistently to reduce its outstanding debt level. Additionally, it has been taking steps to maintain a diverse liquidity program to support ongoing operations and commercial activities by issuing notes.
Focus on Debt Reduction
Going forward, Dynegy is primarily focused on debt reduction, which is anticipated mainly from operating cash flows. Further, PRIDE initiatives and asset sales will aid in maintaining a healthy balance sheet, while managing debt maturities and improving leverage position.
The company exited with total long-term debt of $9.2 billion as of Jun 30, 2017 compared with nearly $8.8 million at the end of 2016. Soon after, it completed the sale of its Dighton & Milford energy facilities to Starwood Energy Group Global for approximately $119 million, proceeds of which were used toward paying off debt. (Read more: Dynegy Continues to Lower Debt Burden, Sells $119M Assets).
The power industry is a capital intensive and companies operating in this industry try to maintain a balance sheet with manageable debt levels supported by a flexible and diverse liquidity mix.
We believe, Dynegy should continue with debt restructuring steps to improve current capital standing structure. Its aim of lowering debt burden, focus on making the most of its current fleet and efforts to deliver cost efficient power to customers will boost its performance in the long run.
Going ahead, we expect the company’s ongoing debt restructuring steps will aid in bolstering the its efforts to maintain adequate cash balances, sufficient lines of credit and revolving credit facilities for supporting ongoing liquidity needs.
Dynegy has underperformed the industry in the last 12 months. The company’s shares lost 23.5%, against the industry’s gain of 14.6%.
Zacks Rank & Key Picks
Dynegy currently carries a Zacks Rank #4 (Sell).
Investors can consider better-ranked stocks like NRG Energy, Inc. (NRG - Free Report) , CenterPoint Energy, Inc. (CNP - Free Report) , both of which sport a Zacks Rank #1 (Strong Buy) and Algonquin Power & Utilities Corp. (AQN - Free Report) that carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
NRG Energy delivered an average surprise of 457.1% in the trailing four quarters. Its 2017 estimates have risen by 15.9% to 73 cents per share in the last 90 days.
CenterPoint Energydelivered an average surprise of 2.2% in the trailing four quarters. Its 2017 estimates have risen by 1.6% to $1.31 per share in the last 90 days.
Algonquin Power delivered an average surprise of 34.2% in the trailing four quarters. Its 2017 estimates have risen by 14.3% to 56 cents per share in the last 90 days.
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