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FirstEnergy Soars as Elliott Leads $2.5 Billion Investment

Updated on
  • Troubled power generator’s shares jump most since 2008
  • Working group to speed up exit from competitive generation

FirstEnergy Corp. rose the most in almost a decade after announcing a $2.5 billion equity investment by a group including Elliott Management Corp.

As part of the deal, the Akron, Ohio-based utility owner is forming a "restructuring working group" that will seek to minimize the time needed to exit the unregulated power business, according to a statement Monday. The company has been considering options including debt restructuring or bankruptcy protection for its FirstEnergy Solutions unit -- the entity that includes a basket of coal-fired and nuclear power plants whose competitiveness have been undermined by cheap natural gas.

The other investors are Bluescape, Singapore’s sovereign wealth fund, and Zimmer Partners LP. The investment includes $1.62 billion in mandatory convertible preferred equity and $850 million of common equity. 

“The investors are smart money,” said Kit Konolige, a New York-based analyst for Bloomberg Intelligence. “They’ll be interested in getting a good return sooner rather than later.”

Under Pressure

It’s not the first time some of the investors have teamed up. Under pressure from Elliott and Bluescape since early last year, NRG Energy Inc. is looking to divest as much as $4 billion worth of assets. Bluescape’s C. John Wilder had worse luck at Exco Resources Inc. He stepped down as executive chairman of the oil and natural gas driller in November after being handpicked to revive its fortunes in 2015. Exco filed for bankruptcy this month.

Shares in FirstEnergy jumped as much as 16 percent in New York, their steepest intraday gain since October 2008. They were 12 percent higher at $32.91 as of 2:45 p.m.

Wilder will sit on the restructuring working group alongside three FirstEnergy executives and Tony Horton, chief financial officer and executive vice president of Energy Future Holdings Corp.

“We are supportive of FirstEnergy’s transition to a pure-play collection of pristine, fully regulated utility companies,” Jeff Rosenbaum, portfolio manager at Elliott, said in the statement.

The proceeds of the private offering will reduce FirstEnergy’s holding company debt, contribute to its pension fund and be used for general corporate purposes. The investment will also strengthen the company’s investment-grade balance sheet. 

The company has lobbied at both the federal and state level to bail out its struggling plants.

Energy Secretary Rick Perry proposed a plan late last year that would’ve aided coal and nuclear plants by paying generators more for stockpiling fuel on-site -- a capability that, he said, makes grids more “resilient.” The Federal Energy Regulatory Commission rejected Perry’s idea earlier this month after it drew widespread criticism from gas producers, power-grid operators and others who argued it would undermine competition.

FirstEnergy previously said it expected to issue at least $1.5 billion of common equity through 2019 and Monday’s agreement will more than satisfy that need. The company doesn’t anticipate the need to issue further equity through the end of 2020.

(Updates shares in sixth paragraph.)
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