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NRG Yield to Acquire Wind Assets

Zacks Equity Research

NRG Yield, Inc. (NYLD) has announced that it will acquire North America’s largest wind farm, the Alta Wind facility, from Terra-Gen Power LLC (“Terra-Gen Power”). The transaction is valued at $0.87 billion. In addition, the company may bear the non-recourse project financings of $1.6 billion, considering customary working capital adjustments. The transaction is expected to be completed in third-quarter 2014, subject to regulatory approvals.

Alta Wind facility is a part of Terra-Gen Power’s strong Californian wind portfolio. The facility is located on the 9,000 acre Alta Wind Energy Center (AWEC) in Tehachapi, CA. AWEC is estimated to diminish carbon dioxide emissions by over 52 million metric tons annually.

NRG Yield plans to utilize a combination of its cash, equities and proceeds of the recently issued senior notes to finance the acquisition. As of Mar 31, 2014, the company had a cash balance of $0.42 billion. NRG Yield recently increased its limit under the revolving credit facility to $0.45 billion.

NRG Yield, a unit of NRG Energy, Inc. (NRG), is primarily engaged into renewable-energy business. The company owns solar and wind assets. The company also has exposure on conventional-fuel based assets. Currently, NRG Yield has a total generation capacity of 414 megawatts (MW) through renewable assets, including 101 MW from wind. The latest acquisition will enable NRG Yield to add 947 MW of capacity to its portfolio. The company will also get a portfolio of land leases related to the Alta Wind facility. Post acquisition, NRG Energy’s total wind generation will increase to 2,839 MW.

The acquisition will allow NRG Yield to enjoy the benefit of Alta Wind’s long-term power purchase agreements with Southern California Edison a unit of Edison International (EIX). Also, the deal is expected to boost earnings before interest, taxes, depreciation, and amortization and cash available for distribution by around $0.22 billion and $0.07 billion per year, respectively, by 2016.

NRG Yield is currently pursuing a steady acquisition program. On May 5, 2014, the company inked an agreement with NRG Energy to acquire two solar facilities, TA High Desert and RE Kansas South, and El Segundo Energy Center, a gas-fired facility. These initiatives will enable the company to expand its scale of operations besides diversifying generation mix.

Recently, the Obama administration rolled out its plan to curb carbon emissions from power plants by 30% by 2030 from 2005 levels. The rule will probably come into effect next year. We believe that NRG Yield is well-positioned to meet stringent utility regulations, having a well-balanced generation portfolio.

NRG Yield currently has a Zacks Rank #1 (Strong Buy). Another stock in the utility sector looking equally good is Black Hills Corporation (BKH), carrying a Zacks Rank #1 (Strong Buy).

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