Reliant closes Sithe acquisition
Texas-based Reliant Energy introduced a strategic asset presence in
the key mid-Atlantic region with the completion on May 12 of its
$2.1 billion acquisition of 21 power plants in Pennsylvania, New
Jersey and Maryland (PJM) totalling 4,276MW of net generating
capacity. The company announced an agreement to purchase the plants
from Sithe Energies Inc., a unit of Vivendi SA, on February 21.
The acquisition significantly advances Reliant's strategy of owning power generation assets in key regions of the US and then using its commercial skills in energy trading and marketing to optimize the value of the assets. Acquisition of the PJM assets brings Reliant's domestic generating portfolio to 23,000MW. More importantly, it will have a positive impact on its earnings and is a key component in allowing the company to raise its earnings growth expectations for the year to about 12 %.
Financing for the Sithe purchase is structured as a bridge facility raised on behalf of the special purpose company FinanceCo, a Delaware Limited partnership established by Reliant to serve as a financing vehicle for non-regulated businesses.
Reliant plans to expand its commercial paper program to $4.4 billion from $1.64 billion. The increased commercial paper program at FinanceCo will be backed by $4.44 billion of committed bank credit facilities and will be used to provide interim bridge financing for Reliant's cash acquisition of the Sithe units.
The bridge debt is expected to be paid down using proceeds from a leveraged lease financing ($1.0 billion). The balance will be paid down with a mix of proceeds generated by Reliant's upcoming regulatory asset securitization ($740 million), sale of Latin American assets, as well as the planned divestiture of certain non-strategic interstate gas pipeline and distribution assets of Reliant Energy Resources Corp.
The architecture of the deal closely resembles that of other merchant power deals, most notably Edison Mission's Homer City acquisition last year.
To provide the necessary credit support, Reliant is implementing a $1 billion long-term capacity contract with Reliant Energy Mid-Atlantic Power Holdings, a subsidiary of Reliant Energy.
According to Duff & Phelps, ?as a result of the Sithe acquisition and the funding of the final step in its acquisition of Dutch generator UNA, Reliant's balance sheet and credit protection measures will experience some near-term pressure, but will not jeopardize its liquidity. Debt leverage, as measured by adjusted total debt to capitalization, approximately 58% at year end 1999, is projected to peak at around 63 %. The asset sales and other exceptional transactions are expected to boost Reliant's liquidity later in the year, permitting some reduction of the debt balance.?
Reliant's impending regulatory asset securitization relates to expenses expected to be left ?stranded? when Texas opens its market to competition in 2002. ?Stranded? costs refer to expenses incurred by a utility under regulation that are not expected to be recovered through rates in a competitive market
With the purchase of the Sithe units, Reliant has acquired 16 plants in Pennsylvania, four in New Jersey, and one in Maryland. The plants are fuelled by coal (50%), oil/natural gas (46%) and hydro (4%), and represent a combination of baseload, peaking and intermediate generation. The assets are well complemented by Reliant's commercial skills and capabilities because of their scale, fuel diversity, spectrum of unit capability and geographic location on both sides of the east-west transmission constraint. Reliant will manage and operate all the output generated by these plants.
Reliant is expanding swiftly in the US. Last October, Reliant acquired the 619MW Indian River power plant in Brevard County, Florida, for $205 million, despite the fact that 16 other companies indicated interest in the plant.
Further, Reliant has received approval from the Osceola Commission Board to begin construction of a 460MW natural gas-fired power plant in Osceola County, Florida. The Reliant Osceola project will provide Osceola County with more than $1.5 million in annual tax revenues and will produce a $10.9 million economic impact from the construction of the facility. Construction, to begin soon, is to be completed in 18 months. The facility will be located on a 440-acre tract of land near the town of Holopaw. The project will be a peaking unit, which means it will only produce power during periods of heavy electricity usage
?Since closing on our first acquisition just over two years ago, we have grown on our unregulated power generation business to approximately 9,000MW operating across seven states?, comments a Reliant executive. ?With another 14,000MW in Texas to be deregulated January 1, 2002, we are well on our way to becoming one of the nation's largest power generators. We are also one of only five companies in the US to rank in the top ten in both electricity and natural gas trading volumes.?
The Sithe deal also comes shortly after the close of $2.2 billion financing for Reliant's acquisition of the Dutch generating concern UNA, the Netherlands' third largest generator.
Reliant is paying 31% more than Sithe did when it bought the plants from GPU Inc. for $1.6 billion last November. Analysts partly attribute the rise in the value of capacity to last summer's price spikes caused by a prolonged heatwave.
The acquisition significantly advances Reliant's strategy of owning power generation assets in key regions of the US and then using its commercial skills in energy trading and marketing to optimize the value of the assets. Acquisition of the PJM assets brings Reliant's domestic generating portfolio to 23,000MW. More importantly, it will have a positive impact on its earnings and is a key component in allowing the company to raise its earnings growth expectations for the year to about 12 %.
Financing for the Sithe purchase is structured as a bridge facility raised on behalf of the special purpose company FinanceCo, a Delaware Limited partnership established by Reliant to serve as a financing vehicle for non-regulated businesses.
Reliant plans to expand its commercial paper program to $4.4 billion from $1.64 billion. The increased commercial paper program at FinanceCo will be backed by $4.44 billion of committed bank credit facilities and will be used to provide interim bridge financing for Reliant's cash acquisition of the Sithe units.
The bridge debt is expected to be paid down using proceeds from a leveraged lease financing ($1.0 billion). The balance will be paid down with a mix of proceeds generated by Reliant's upcoming regulatory asset securitization ($740 million), sale of Latin American assets, as well as the planned divestiture of certain non-strategic interstate gas pipeline and distribution assets of Reliant Energy Resources Corp.
The architecture of the deal closely resembles that of other merchant power deals, most notably Edison Mission's Homer City acquisition last year.
To provide the necessary credit support, Reliant is implementing a $1 billion long-term capacity contract with Reliant Energy Mid-Atlantic Power Holdings, a subsidiary of Reliant Energy.
According to Duff & Phelps, ?as a result of the Sithe acquisition and the funding of the final step in its acquisition of Dutch generator UNA, Reliant's balance sheet and credit protection measures will experience some near-term pressure, but will not jeopardize its liquidity. Debt leverage, as measured by adjusted total debt to capitalization, approximately 58% at year end 1999, is projected to peak at around 63 %. The asset sales and other exceptional transactions are expected to boost Reliant's liquidity later in the year, permitting some reduction of the debt balance.?
Reliant's impending regulatory asset securitization relates to expenses expected to be left ?stranded? when Texas opens its market to competition in 2002. ?Stranded? costs refer to expenses incurred by a utility under regulation that are not expected to be recovered through rates in a competitive market
With the purchase of the Sithe units, Reliant has acquired 16 plants in Pennsylvania, four in New Jersey, and one in Maryland. The plants are fuelled by coal (50%), oil/natural gas (46%) and hydro (4%), and represent a combination of baseload, peaking and intermediate generation. The assets are well complemented by Reliant's commercial skills and capabilities because of their scale, fuel diversity, spectrum of unit capability and geographic location on both sides of the east-west transmission constraint. Reliant will manage and operate all the output generated by these plants.
Reliant is expanding swiftly in the US. Last October, Reliant acquired the 619MW Indian River power plant in Brevard County, Florida, for $205 million, despite the fact that 16 other companies indicated interest in the plant.
Further, Reliant has received approval from the Osceola Commission Board to begin construction of a 460MW natural gas-fired power plant in Osceola County, Florida. The Reliant Osceola project will provide Osceola County with more than $1.5 million in annual tax revenues and will produce a $10.9 million economic impact from the construction of the facility. Construction, to begin soon, is to be completed in 18 months. The facility will be located on a 440-acre tract of land near the town of Holopaw. The project will be a peaking unit, which means it will only produce power during periods of heavy electricity usage
?Since closing on our first acquisition just over two years ago, we have grown on our unregulated power generation business to approximately 9,000MW operating across seven states?, comments a Reliant executive. ?With another 14,000MW in Texas to be deregulated January 1, 2002, we are well on our way to becoming one of the nation's largest power generators. We are also one of only five companies in the US to rank in the top ten in both electricity and natural gas trading volumes.?
The Sithe deal also comes shortly after the close of $2.2 billion financing for Reliant's acquisition of the Dutch generating concern UNA, the Netherlands' third largest generator.
Reliant is paying 31% more than Sithe did when it bought the plants from GPU Inc. for $1.6 billion last November. Analysts partly attribute the rise in the value of capacity to last summer's price spikes caused by a prolonged heatwave.
Request a Demo
Interested in IJGlobal? Request a demo to discuss a trial with a member of our team. Talk to the team to explore the value of our asset and transaction databases, our market-leading news, league tables and much more.