Exelon Unit Offers $550M Bonds

Exelon Corporation’s (EXC) subsidiary PECO Energy Company (“PECO”) announced that it has priced two series of the first mortgage bonds, worth $550 million. The first series comprises $300 million bonds yielding annual interest of 1.20% and maturing on Oct 15, 2016, while the second series consists of $250 million bonds yielding 4.80% interest per year and maturing on Oct 15, 2043. The offering will close on Sep 23.

PECO will utilize a portion of the net proceeds to pay the aggregate principal amount of its 5.60% first mortgage bonds, worth $300 million, due on Oct 15, 2013. The rest will be utilized for general corporate purposes.

PECO is issuing new bonds with a lower coupon rate to lower its cost of capital and extend its debt repayment burden.

Exelon and its subsidiaries issue bonds and notes from time to time to refinance debts. In Mar 2009, PECO sold the first and refunding mortgage bonds, worth $250 million with a coupon rate of 5%. Recently, Exelon’s another subsidiary Commonwealth Edison Company priced its 4.60% first mortgage bonds, worth $350 million. The bonds will mature on Aug 15, 2043. In both cases, the company utilized the net proceeds to refinance debts and used the rest for general corporate purposes.

We appreciate Exelon’s continuous effort towards minimization of debt burden. The company issues senior notes and bonds to pay-off its existing debts. Exelon’s long-term debt as of Jun 30, 2013 was $16.1 billion, down from $17.2 billion at the end of Dec 31, 2012. As of Jun 30, 2013, Exelon’s cash balance was $1.0 billion and cash provided by operating activities during the first six months of 2013 was $1.2 billion. A strong financial position will enable the company to pay additional interest, resulting from the current bond offering.

Exelon currently has a Zacks Rank #3 (Hold). However, other stocks in the industry that are worth considering include Huaneng Power International, Inc. (HNP) with a Zacks Rank #1 (Strong Buy), and Brookfield Infrastructure Partners L.P. (BIP) and IdaCorp, Inc. (IDA), each with a Zacks Rank #2 (Buy).

Chicago, Ill-based Exelon engages in generation, transmission, distribution and sale of electricity to the residential, commercial, industrial and wholesale customers.

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