|Title:||United States corporate utility and power mergers with values in dollars for year ending August 31, 2011|
|Source:||Public Utilities Fortnightly|
Start of full article - but without data
M&A SNAPSHOT (X/l/2010-X/XX/2011)
FIG. X-A U.S. CORPORATE UTILITY & POWER MERGERS
Seller Issuer/Seller State Buyer
Progress Energy (PGN) NC Duke Energy E.On A.G. (FWB: EOAN) KY PPL Corp, (PPL) Constellation Energy (CEG) MD Exelon Allegheny Energy (AYE) PA FirstEnergy Nstar (NSF MA Northeast Utilities (NU) DPL (DPL) OH AES Corp. (X/XX/2011) Nicor (GAS) IL AGL Resources (AGL) Central Vermont Public VT Valener Inc.--Gaz Metro Service (CV) Limited Partnership (Toronto: VNR) Green Mountain Energy TX NRG Energy (NRG) Mxenergy CT Constellation Energy (CEG) Fotowatio Renewable Spain SunEdison, MEMC Ventures Electronic Materials
Issue/Sale Issuer/Seller Date (Annc'd) Value ($Million)
Progress Energy (PGN) (X/XX/2011) XX,XXX E.On A.G. (FWB: EOAN) XX/X/2010 X,XXX Constellation Energy (CEG) (X/XX/2011) X,XXX Allegheny Energy (AYE) X/XX/2011 X,XXX Nstar (NSF (XX/XX/2010) X,XXX DPL (DPL) OH X,XXX Nicor (GAS) (XX/X/2010) X,XXX Central Vermont Public (X/XX/2011) XXX Service (CV) Green Mountain Energy XX/X/2010 (X/XX/2010) XXX Mxenergy X/X/2011 XXX Fotowatio Renewable X/X/2011 (X/X/2011) XXX Ventures
This has always been a complex industry.
Many factors drive the successes and failures of the companies in the U.S. power and utility business. But today the industry faces historic challenges and complexities on almost every front--from technology to regulation to business strategy.
Ironically, the one area where utility companies seem to be enjoying relative tranquility is also the area where uncertainty has its greatest effect: finance.
It's a truism that investors hate uncertainty, but uncertainty is a relative term. Amid the raging sea that is Wall Street these days, utilities represent a safe haven, with balance sheets based on steady cash flow and steel in the ground. As a result utilities have maintained easy access to low-cost capital, even in the worst of times (see Figures X through X).
At the same time, however, utilities and power companies face serious headwinds that will affect their future business prospects. To learn how banks and investors view these factors, Fortnightly spoke with eight finance executives and two industry lawyers:
* Jeff Holmstead, Bracewell & Giuliani
* Larry Eisenstat, Dickstein Shapiro
* Tim Kingston, Goldman Sachs
* Andy Redinger, KeyBanc Capital Markets
* George Bilicic, Lazard Ltd.
* James Hempstead, Mike Haggerty and Ryan Wobbrock, Moody's Investors Service
* David Nastro, Morgan Stanley
* Frank Napolitano, RBC Capital Markets
FORTNIGHTLY: What trends do you see in capital market access and terms for utility and power companies? In particular, how has the financial turmoil since July affected financing for companies in this sector?
KINGSTON, GOLDMAN SACHS: There's been a high level of investor interest in the utility and power sector despite the difficult times we've been through. Utilities aren't immune to the kind of volatility we've seen in the equity markets recently, but they've been among the first to recover and have had relatively open access to the markets. Debt markets were enormously volatile in August, but our clients successfully priced debt transactions at historically low coupon rates, and in general utility companies saw their equity valuations recover faster than companies in other sectors.
There's a focus on financial conservatism. Utilities that have been prudent and conservative in their financing plans are being rewarded with market access and historic low rates.
REDINGER, KEYBANC: Capital was more expensive during the financial turmoil a couple of years ago, but since the capital markets recovered, it's never been better for the utility sector.
Investors have been clamoring for utility debt. There isn't enough supply, because bonus depreciation provisions have allowed utilities to avoid raising capital. So we've seen spreads tighten a bit, and it's very easy for utilities to access capital.
Economic sentiment is changing toward greater concern about a double-dip recession, and that's affected the capital markets in general. But quite frankly, it's probably helped the demand for utility paper, because it's seen as a defensive investment.
NASTRO, MORGAN STANLEY: Poor economic data has investors worried about a faltering economy and even a double dip recession. That has driven a rally in Treasuries in spite of the Federal Reserves quantitative easing program and S&P's downgrade of the U.S. government's credit rating. Investors continue to show tremendous appetite for high quality credits in this uncertain environment. In short, there's been a flight to quality. Buy-side investors are asking for long-dated, high-quality nonfinancial paper. We've seen nimble issuers accelerate their issuance timetables to take advantage of historically low rates and favorable terms. But given the market uncertainty and volatility, new issue windows have been largely day-to-day. In the utility sector, companies have issued five-year unsecured debt with coupon rates below X percent, and XX-year secured notes at around X percent.
At the same time, there has been a structural change in the bank market. Pricing for revolving credit has tightened across the ratings spectrum, which has resulted in a number of utilities refinancing their corporate bank facilities over the past year and extending the tenor. However, while supply and demand dynamics have driven the market tighter, we might see a floor in pricing due to regulatory capital changes and increasing cost of funds for lenders.
In terms of equity, the near-term cash benefits associated with bonus depreciation have limited the need for new issuance from the utility sector, outside of acquisition financing. New equity requirements have largely been pushed out by a year or two. This is a timing point, however, and doesn't change the long-term need to tight-size companies' balance sheets and fund significant future capital requirements.
[FIGURE X OMITTED]
[FIGURE X OMITTED]
[FIGURE X OMITTED]
In the secondary market, utilities have maintained their defensive characteristic amidst a selloff in the broader markets, and have become the preferred hiding place for many investors looking for yield. That being said, we're starting to see divergence in valuations within the utility space. The safety bid is now driving intra-sector price movements. Regulated utilities have outperformed hybrid companies, which have outperformed merchant generators, because investors have a strong preference for the largest, most liquid and safest names in the sector--especially those with decoupled regulatory frameworks, which provide protection from declining sales.
The volatility has most affected the high-yield debt market, where new issuance dramatically slowed in August and September. But given all-in cost of debt, it's still attractive in a broader historical context. A number of IPPs took advantage of an attractive new issue window in May and June to restructure their balance sheets.
BILICIC, LAZARD: The power and utility industry in general has terrific access to the capital markets. We'd expect that access will continue to be strong and stable for the foreseeable future, particularly for companies that are regulated or mostly regulated. Access will be more intermittent and unpredictable for non-regulated companies, particularly those that aren't publicly traded.
NAPOLITANO, RBC: It's a world of haves and have-nots. The haves are investment-grade utilities, and they can exert their will on the bond buyers market because there's a shortage of paper.