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Black Hills (BKH) Prices $700M Notes to Refinance Debts

Zacks Equity Research

Black Hills Corporation BKH announced that it has priced a public offering of $700 million senior unsecured notes. The debt offering is in two tranches, with first issue comprising $400 million of 3.050% senior notes due 2029 and second issue consisting of $300 million of 3.875% senior notes due 2049. The offering will close on Oct 3 2019, which is liable to customary closing conditions.

The company intends to utilize the net proceeds from the offering to redeem all of its outstanding $400 million term loan, retire all $200 million of 5.875% senior unsecured notes due Jul 15, 2020 and utilize the balance to reimburse a portion of its surplus commercial paper and general-corporate basis.

The decision to refinance debt will enable the company to benefit from borrowed capital for a longer period at a lower cost. The capital-intensive utilities have started to gain from the Fed’s back-to-back rate cut and have started to refinance their high interest debt from the issue of low interest bearing notes.

Many companies from the capital-intensive industry are reducing cost of capital post the rate cut through debt refinancing. WPX Energy WPX, Plains All American Pipeline PAA and Noble Energy NBL are such companies.

Debts

Black Hills Corporation’s debt-to-capitalization ratio currently stands at 57.7%, higher than the industry’s average of 53.94% and the S&P 500 composite’s average of 47.87%. Nevertheless, the company is working to strengthen its balance sheet. The debt-to-capital ratio indicates 8.3% decline compared with 2017 level of 66%. This reflects on the company’s ability to lower debt in the past few years.

Investment Plans

The company expects its five-year (2019-2023) capital investment to be nearly $2.8 billion. A significant chunk of the spending will be allocated to substitute existing utility infrastructure and providing reliable services to increasing customer base.

More than 90% of its capital investment was directed to strengthen its utility operations. Timely recovery of invested capital enables the company to repay debt and payout consistent dividend to its shareholders.

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