Dynegy (DYN) To Sell Assets Worth $780M To Lower Debt Burden
Zacks Investment Research | Jul 11, 2017 11:13PM ET
Dynegy Inc. (NYSE:DYN) , announced the sale of three of its power generating plants for nearly $300 million.
Under the terms of the agreement, Dynegy will receive $180 million in cash by selling its Lee Energy Facility, IL, a gas-fueled peaking 625 megawatt (MW) asset to Rockland Capital’s affiliate and $119 million from the sale of Dighton and Milford Energy Facilities, MA to Starwood Energy Group Global.
The remaining part of $480 million sale funding will be garnered from the sale of the company’s Armstrong and Troy Energy Facilities, to LS Power.
The company intends to utilize the entire sales proceed of $780 million, toward debt reduction purposes.
Efforts toward Debt Reduction
Dynegy has been working on its strategy to strengthen balance sheet and monetize non-core assets, while using the proceeds to fund growth projects and also utilize the excess to lower debt burden. In Nov 2016, the company sold its 50% equity interest in Elwood Energy, LLC which generated nearly $173 million and the proceeds were utilized to lower debts.
Earlier this year in Feb 2017, the company completed The Illinois Power Holdings (Genco) financial restructuring program and repaid debts worth $640 million.
This current initiative to sell assets and lower debt level is in tandem with the initiatives taken by the company to strengthen balance sheet and lower the cost of servicing its debt capital.
Our View
The company exited first-quarter 2017 with total long-term debt of $9.2 billion compared with nearly $8.8 billion at the end of 2016. Even with the debt reduction earlier this year, the debt-to-capital ratio of the company is presently 79.16%, much higher than the S&P 500 level of 41.80%.
Given the ongoing increase in interest rate, the rising debt levels can adversely impact the performance of the company. We believe Dynegy needs to continue with debt restructuring initiatives to improve capital structure and create long-term value for shareholders.
Price Movement
In the last 12 months, Dynegy has underperformed the Zacks categorized Utility - Electric Power industry. The company’s shares lost 59.2% against the industry’s gain of 0.2%.
The power industry is a capital intensive, cyclical commodity business with significant commodity price volatility. The price underperformance can be attributed to the earnings volatility that Dynegy has been facing for quite some time now, due to volatility in supply, fuel price volatility, interest rates, and other seasonal factors.
Get The News You Want
Stocks to Consider
Dynegy currently carries a Zacks Rank #3 (Hold).
Better-ranked players from the Zacks Investment Research
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.