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Dynegy to Acquire Retail Supply Business A Dynegy subsidiary has entered into an agreement to acquire Ameren Energy Resources (AER) and its subsidiaries Ameren Energy Generating Company (Genco), Ameren Energy Resources Generating Company (AERG), and retail supplier Ameren Energy Marketing Company (AEM).
AEM includes established marketing and retail businesses which provide 15 million megawatt-hours of electricity annually to municipals, co-ops, and commercial and industrial customers in MISO and PJM. The aggregation-focused Homefield Energy retail brand, which serves nearly 500,000 homes and small businesses in Illinois and 141 aggregations, is included in this total. Dynegy's PJM-based generation facilities will provide support for growth in that market. These businesses will also provide basis management opportunities for the entire coal fleet.
Dynegy said that the transaction meets its previously expressed objective to establish a retail business, but immediately and on a larger scale.
Dynegy said that local generation throughout Illinois will allow for a high rate of retail customer retention. Existing and new capacity in PJM will support competitive retail pricing which may lead to increased PJM sales, Dynegy said.
Dynegy executives said on a conference call today that margins in the Illinois retail market (not the specific AEM portfolio) are in the $2-3/MWh range.
Dynegy will acquire 4,119 MW of generation and AER's marketing and Homefield Energy retail businesses through Illinois Power Holdings (IPH), a newly formed, non-recourse subsidiary (with the exception of a $25 million limited guarantee)
Upon closing, Dynegy will own more than 8,000 megawatts (MW) of generating capacity in Illinois, and nearly 14,000 MW nationally. The AER retail and marketing businesses and the following plants are included in the transaction: Duck Creek, Coffeen, E.D. Edwards, Newton, and Joppa.
"The acquisition of AER is expected to create significant value for Dynegy shareholders by building upon our existing scale in one of our key markets with assets similar to our Illinois-based CoalCo portfolio. We are uniquely positioned to create significant synergies that will benefit AER and our CoalCo and GasCo businesses. AEM also brings to Dynegy an established retail business with significant scale that complements both portfolios," said Robert C. Flexon, Dynegy President and Chief Executive Officer. "Additionally, the financial terms of the acquisition and the transaction structure ensure that very limited capital support, if any, will be needed or provided by the Company to AER thereby preserving Dynegy's capital allocation flexibility."
There is no cash consideration for the acquisition of AER and its consolidated subsidiaries, but $825 million in existing Genco debt remains a Genco obligation
Prior to closing, Ameren, or its designated subsidiary, will purchase Genco's Elgin, Grand Tower and Gibson City natural gas-fired generation plants for a guaranteed minimum price of $133 million. Appraisals will be obtained for these plants prior to settlement, and if the average value of the appraisals exceeds $133 million, any excess amount will be remitted to Genco. If Ameren subsequently sells these plants within two years of closing, all after-tax proceeds in excess of the $133 million, or the higher appraised value if applicable, will be remitted to Genco.
In addition to the gas plant sale proceeds, Ameren will ensure a minimum of $93 million of cash at AER and its subsidiaries of which approximately $70 million will be held at Genco.
For 24 months following closing, Ameren is to provide post-closing credit support to IPH for its existing commercial obligations. IPH's reimbursement obligation for that support would be secured by a lien on certain IPH assets.
AER will have consolidated net working capital at closing, excluding cash, of $160 million.
AER has recently obtained additional transmission rights which, when confirmed by AER, will increase the total available transmission capacity from their Illinois assets into PJM to approximately 900 MW. These rights will be available for the 2016/2017 PJM capacity auction.
The targeted synergies, along with the current forward market for natural gas prices and Dynegy's associated view on forward power and capacity prices, are expected to result in AER being accretive to Dynegy's Adjusted EBITDA in 2014 and to Free Cash Flow by 2015. In addition, these same forward curves indicate that all three of AER's subsidiaries offer substantial equity value creation for the benefit of Dynegy's shareholders, the company said.
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March 14, 2013
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Reporting by Karen Abbott • kabbott@energychoicematters.com
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