Electricity and natural gas company Xcel Energy Inc. (XEL) decided to redeem all of its 7.60% Junior Subordinated Notes, due 2068, on May 31, 2013. The company has submitted a notice to the trustee to that effect and presently $400 million is outstanding from that series.
Xcel Energy intends to finance the redemption through short-term borrowings from the market and also utilize a portion of its cash balance. The redemption price will be 100% of the face value plus interest accrued up to the redemption date.
The financial strategy of Xcel Energy includes issuance of debt and equity securities to refinance retiring maturities, reduce short-term debt, fund construction programs, fund asset acquisitions and for other general corporate purposes. In 2013, the company intends to issue $1 billion in first mortgage bonds to fulfill the aforesaid objectives.
Xcel Energy’s debt-to-capital ratio at the end of 2012 was 56% versus 55% at the end of 2011. Xcel Energy issued bonds of different series during 2012 totaling $1.8 billion, which increased the debt-to-capital ratio.
Besides issuing new notes to generate funds, the company and its subsidiaries also enter into credit agreements with banks to meet their financial requirements. These credit facilities have financial covenant requiring that the debt-to-total capitalization ratio of each entity be less than or equal to 65%. The time to time redemption of outstanding notes enables the company to fulfill this financial covenant.
We believe the redemption of these notes and decision to issue shares in Mar 2013 will definitely aid the company to improve its debt-to-capital ratio.
Xcel Energy carries a Zacks Rank #2 (Buy). Besides Xcel Energy other utilities like Brookfield Infrastructure Partners L.P. (BIP), Huaneng Power International, Inc. (HNP) and Empresa Nacional de Electricidad S.A. (EOC) are also performing well and currently have a Zacks Rank #1( Strong Buy).
Based in Minneapolis, Minn., Xcel Energy is a U.S. electricity and natural gas company, with operations in eight Western and Midwestern states.
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