climate-changed

NRG Divesting $2.8 Billion in Assets Following Singer's Push

Updated on
  • Global Infrastructure to take controlling stake in yieldco
  • Activists pressed power generator to streamline, trim costs

A pile of coal sits outside the NRG Energy Inc. Will County Generating Station in Romeoville, Illinois.

Photographer: Daniel Acker/Bloomberg

NRG Energy Inc., the U.S. power generator prodded by billionaire investor Paul Singer to unload assets, agreed to $2.8 billion in divestitures, including one of the largest-ever renewable energy deals.

The linchpin: Global Infrastructure Partners agreed to pay $1.38 billion in cash for NRG’s renewable energy platform and a controlling stake in its publicly traded wind and solar company, NRG Yield Inc., according to a statement Wednesday. Under the agreement, set to close in second half of 2018, GIP’s third equity fund would take a 46 percent stake in NRG Yield.

NRG Energy also is selling power plants in Louisiana to Cleco Corporate Holdings LLC for $1 billion, and other assets to NRG Yield for $407 million. NRG’s stock jumped 5.4 percent to $26.90 at 10:05 a.m. in New York, and NRG Yield slipped 2.3 percent.

The agreements come more than a year after Singer’s Elliott Management Corp. and C. John Wilder’s Bluescape Energy Partners disclosed an activist stake in NRG and pressed it to cut costs and streamline operations amid sagging profit and stagnant demand for electricity. NRG’s shares have since soared, making it the best performer on the S&P 500 Index in 2017.

Shedding Renewables

Wind and solar account for 15 percent of NRG Energy's generating capacity

Source: NRG Energy Inc.

NRG has pushed to divest between $2.5 billion and $4 billion worth of assets, with much of the focus on clean energy. While renewables have propelled much of NRG’s recent growth, selling the assets would let the company raise cash and remove debt.

The company said Wednesday that it has lined up about $2.9 billion in total asset sales, with more expected this year. It now anticipates total asset sales cash proceeds of about $3.2 billion. The deals announced Wednesday would remove $7 billion of consolidated debt from NRG’s balance sheet.

“We are very confident of being three times net debt to Ebitda in 2018,” Kirk Andrews, NRG’s chief financial officer, said on an analyst call Wednesday. “It strikes the right mix of flexibility.”

Yieldcos

NRG Yield is the latest clean-energy holding company, or yieldco, to be offered for sale. Yieldcos have fallen from favor on Wall Street since clean-energy giant SunEdison Inc.’s 2016 bankruptcy, but the wind and solar farms they operate remain appealing to investors because they provide reliable revenue from long-term utility contracts.

“It’s notable that NRG opted to sell the renewables development unit plus its stake in the yieldco as a package. Fundamentally, that makes sense,” Nathan Serota, a New York-based analyst at Bloomberg New Energy Finance, said in an email Wednesday. “Development platforms have a clear upper hand: they have the optionality to sell development assets to their yieldco or to third-party investors, whoever is willing to pay more.”

Brookfield Asset Management Inc. acquired the TerraForm yieldcos from SunEdison last year in deals that valued their combined equity at $2.49 billion. AES Corp. and Alberta Investment Management Corp. paid $853 million in August for solar developer FTP Power LLC. And a unit of Swiss asset manager Capital Dynamics AG said Feb. 5 that it had agreed to buy 8Point3 Energy Partners LP, a yieldco formed by First Solar Inc. and SunPower Corp., for $977 million. That price was less than 8Point3’s market value of about $1.1 billion.

QuickTake Q&A: Yieldcos, Fuel for Energy Projects, Draw Scrutiny

The sale of NRG Yield drew interest from infrastructure funds, insurance companies and others. GIC Pte, John Hancock Life Insurance Co. and KKR & Co. were among those that were said to have contemplated bids.

NRG is “basically selling all the renewables and going back to the core business, which is basically conventional generation: coal, gas and a nuclear plant,” Kit Konolige, a New York-based analyst for Bloomberg Intelligence, said by phone Wednesday.

Citigroup Inc. is NRG’s lead financial adviser on its sale of its renewables-development platform and its NRG Yield stake and renewables. Goldman Sachs Group Inc. and Morgan Stanley are co-lead financial advisers on the sale to Cleco. Jones Day is NRG’s legal adviser on the deals. Barclays Plc and a JP Morgan Chase & Co. unit are financial advisers to the independent directors and management of NRG Yield, with Sullivan & Cromwell LLP as legal counsel. Simpson Thacher & Bartlett LLP is legal counsel to GIP.

— With assistance by Jim Polson

(Updates with comment from executive in seventh paragraph.)
    Before it's here, it's on the Bloomberg Terminal. LEARN MORE