DTE Energy Company (DTE) with a view to trim its debt level announced that it would redeem $280 million of hybrid security on December 29, 2011. The hybrid securities are Trust Originated Preferred Securities possessing characteristics of both equity and debt. DTE Energy earlier issued the securities by creating trusts and issuing debt to them, while the trust issues the trust preferred securities.
Of the $280 million, $180 million was issued by its affiliate DTE Energy Trust I due February 1, 2032, with a coupon rate of 7.80%. The remaining $100 million was issued by its affiliate DTE Energy Trust II due June 1, 2044, with a coupon rate of 7.50%.
DTE Energy will redeem the securities at 100% of the unpaid principal amount, together with accrued and unpaid interest up to, but excluding, December 29, 2011.
DTE Energy’s regulated electric and gas utilities in Michigan generate a relatively stable and growing earnings stream. Additionally, the company is focused on improving its cost structure and directing capital investments toward renewable generation, utility infrastructure and environmental compliance assets. There are also plans to monetize its Barnett Shale assets, which would alleviate the need for external borrowings.
However, we believe these factors are already priced in the current valuation, leaving little room for any upside. Also, we are concerned about the unfavorable macro backdrop, lower demand for electricity, the dismal Michigan economy and pending regulatory cases. The company presently retains a short-term Zacks #3 Rank (Hold) that corresponds with our long-term Neutral recommendation on the stock.
Michigan-based DTE Energy Company is a holding company with subsidiaries engaged in regulated and unregulated energy businesses. Detroit Edison Company and Michigan Consolidated Gas Company are its largest regulated subsidiaries. DTE Energy also has four non-utility segments engaged in a variety of energy-related business. DTE Energy’s unregulated businesses include gas pipelines and storage, unconventional gas exploration, development and production; power and industrial projects and coal transportation and marketing, and energy marketing and trading operations. In the near term we would advise investors to focus on its Zacks #2 Rank (short-term Buy rating) peers like Ameren Corporation ( “>AEE)and Cleco Corporation (CNL.
