Edison Int'l Bankrupt Unit Gets Asset Sale Nod

Zacks Equity Research

A subsidiary of Edison International (EIX) – Edison Mission Energy (EME) – received the go-ahead from the U.S. Bankruptcy Judge Jacqueline Cox in Chicago for the proposed asset sale plan to New Jersey-based NRG Energy Inc. (NRG).

The approval will allow EME to emerge from bankruptcy and sell all of its assets for a price of $2.64 billion. Last month, Edison International agreed to a nearly $1 billion settlement that resolved the unit’s tax, pension and other liabilities. Per this settlement, Edison International will give creditors of EME trust cash and notes worth $625 million and assume approximately $350 million in liabilities.

In Dec 2012, Santa Ana, Calif. based EME had filed for bankruptcy citing a collapse in power prices and mounting pollution control costs. EME listed $5.16 billion worth of assets and $5.09 billion of liabilities. Debt included $3.7 billion on senior unsecured notes and $1.2 billion in debt on individual projects.

Following the sale of assets to NRG Energy, EME will remain a subsidiary of Edison International. The divestment comprises 1,700 megawatt (MW) of wind capacity, 1,600 MW of gas-fired capacity, 4,300 MW of coal-fired capacity and 400 MW of oil and waste coal-fired capacity. Edison’s marketing and trading business unit will be a part of NRG Energy’s asset basket. Four Illinois coal plants, namely, Powerton (Pekin), Joliet, Waukegan and Will County (Romeoville) also form a part of this asset transfer to NRG.

As for NRG Energy, the EME buyout will add 2,600 MW of fully-contracted generation, of which 1,600 MW will comprise long-term contracts. The deal will also diversify the core generation platform of NRG Energy by adding 1,200 MW of contracted gas assets in California and expanding opportunities in Pennsylvania, New Jersey and Maryland (:PJM) West for its coal-fired capacity. Furthermore, NRG Energy by virtue of the deal will become the third largest renewable operator in the U.S. with more than 2,900 MW of wind and solar capacities.

In June last year, President Barack Obama unveiled a fresh climate change strategy that will likely limit pollution from existing coal-fired power plants. He issued directives asking environmental regulators to set up carbon pollution standards for active plants. Coal generates about 40% of U.S. electricity while coal plants are the largest source of carbon emissions in the country. This came as a wake up call for all coal-fired utility stocks, prompting them to expand their renewable basket.

Recently, Edison International reported adjusted earnings of 81 cents per share for the fourth quarter of 2013, ahead of the Zacks Consensus Estimate of 65 cents by 24.6%. However, earnings for the quarter were below the year-ago figure of $1.79 per share.

Edison International presently holds a Zacks Rank #2 (Buy). Other well-placed utility counterparts include Zacks Ranked #1 (Strong Buy) Exelon Corporation (EXC) and Public Service Enterprise Group Inc. (PEG).

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