NRG Energy (NRG) to Redeem Senior Notes Due 2023 in Cash

NRG Energy, Inc. NRG recently made an announcement for redeeming all its outstanding Senior Notes which are due 2023, in cash. Notably, these carry an interest rate of 6.625%.

The redemption price for the 2023 Notes will be an amount equal to 103.313% of the principal amount of the 2023 Notes and accrued as well as unpaid interest on the Notes.

Post redemption, the company will be able to save up $52.3 million in annual interest costs.

What Does This Move Mean?

As such NRG Energy’s decision to redeem all of its outstanding senior notes in cash is clear indication that it is generating sufficient cash and cash equivalents to pay off debts. Further, it is also a testament to the fact that the company is well poised to carry on with cost and interest expenses with its cash generation. Notably, the company generated approximately $1,223 million as of Sep 30, 2017, compared with $938 million generated as of Dec 31, 2016, in form of cash and cash equivalents.

NRG Energy is currently progressing well with its transformation plan that it announced in July 2017. Notably, this plan is aimed to save over $1 billion through recurring cost cuts and margin improvements. Under the plan, it aims to divest assets worth $2.5–$4 billion and utilize the proceeds to strengthen liquidity position.

NRG Energy’s long term Transformation Plan focuses on cost-saving measures, debt-reduction plans and expansion of renewable operations are surely aiding the company to boost its performance. Redemption of debts is also a part of long-term strategy of maintaining robust liquidity structure. The initiatives undertaken by NRG Energy through its Transformation Plan are expected to increase annual cost savings of $500 million in 2018 to nearly $590 million in 2020.

Thanks to this plan, the company has already realized nearly $92 million in form of cost savings in the third quarter and anticipates further savings in the future. Further, this plan also aims at reducing debts by nearly $13 billion. Toward this, it successfully reduced debt level by $604 million in October. This move is anticipated to lower its annual interest burden by $47 million.(Read more: NRG Energy Aims to Save $1B from Transformation Plans)

Price Movement

Shares of NRG Energy have outperformed the industry in the last year. The company’s shares gained 124.2%, compared with the industry’s growth of 10.9%.

Zacks Rank & Key Picks

NRG Energy currently carries a Zacks Rank #3 (Hold).Some better-ranked stocks from the same space are Atlantic Power Corporation AT, DTE Energy Company DTE and IDACORP, Inc. IDA, all of which carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Atlantic Power delivered an average surprise of 29.21% in the trailing four quarters. Its 2017 estimates have narrowed to a loss of 22 cents from a loss of 27 cents in the last 60 days.

DTE Energy delivered an average surprise of 3.81% in the trailing four quarters. Its 2017 estimates have risen to $5.54 per share from $5.42 per share in the last 90 days.

IDACORP delivered an average surprise of 6.97% in the trailing four quarters. Its 2017 estimates have risen to $4.08 per share to $4.00 per share in the last 60 days.

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