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AGL Resources Offers Senior Notes

Zacks Equity Research

Energy services holding company AGL Resources Inc.’s (GAS) wholly owned affiliate – AGL Capital Corporation – recently commenced a public offering of senior notes worth $500.0 million.  The notes, expected to be guaranteed by AGL Resources, will carry an interest rate of 4.40% and are set to mature in 2043.  

Management estimates the proceeds from the offering of the senior notes at roughly $493 million. The amount is expected to be utilized for corporate activities which include the payment of short-term debt for the commercial paper program. AGL Resources expects the offering to close on May 16, 2013.  

Recently, AGL Resources reported weaker-than-expected first quarter 2013 earnings which were hurt by low and volatile natural gas prices. Earnings per share of $1.31 came in below the Zacks Consensus Estimate of $1.35.  However, compared with the year-earlier period, AGL Resources’ earnings per share rose 12.9% – from $1.16 (excluding merger-related expenses) to $1.31 – amid higher energy use on the back of lower-than-expected temperatures, against the unusually warm winter last year.

Founded in 1856, Atlanta, Ga.-based AGL Resources is an energy services holding company whose principal business is gas distribution. Following the Dec 2011 acquisition of Naperville, Ill.-based Nicor Inc., AGL Resources has become the largest domestic natural gas-only distribution entity with about 4.5 million customers across seven states.   

On the flip side, operating results for AGL Resources are affected by weather conditions and may vary on a seasonal and quarterly basis. Natural gas distribution is usually a temperature-sensitive business with about half of all deliveries used for space heating. Usually, almost 75% of the deliveries and sales occur during the six-month period of October through March. Consequently, milder-than-normal weather conditions in the future could adversely affect the company’s operating results, cash flow and financial condition.

AGL Resources currently retains a Zacks Rank #3 (Hold), implying that it is expected to perform in line with the broader U.S. equity market over the next 1 to 3 months.  

In the utility gas distribution sector, three firms that are expected to outperform the broader U.S. equity market over the next 1 to 3 months are Atmos Energy Corporation (ATO), Chesapeake Utilities Corporation (CPK) and Southwest Gas Corporation (SWX). All the three firms currently retain a Zacks Rank #2 (Buy).

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