Pepco Holding Inc. (POM) bought back $194M worth of senior notes, which were tendered on or before the expiration of the tender offer. The notes, which were tendered and bought back, comprised $128.9 million of 6.125% senior notes due in 2017 and $65.1 million of 7.45% senior notes due in 2032.
 
Pepco had fixed July 1, 2010, as an early tender date for the notes. The 6.125% notes and 7.45% notes, tendered before July 1, received $1,125 and $1,200 per $1000 in principal amount, respectively, plus accrued an unpaid interest from the last interest payment date to, but not including, the settlement date.
 
The notes, which were tendered after the early tender date but prior to the expiration of the tender offer, received consideration of $1,095 and $1,170 per $1,000 in principal amount, respectively, plus accrued and unpaid interest from the last interest payment date to, but not including, the settlement date.
 
Pepco will purchase the tendered notes from the proceeds it received from the sale of the wholesale power generation business. Pepco continues to utilize the gains from its business to reduce debt; it had previously redeemed a major portion of its 6.45% senior notes due in 2012.
 
The notes, which remain outstanding after the repurchase of the notes tendered, are $121.1 million in principal amount of 6.125% notes due in 2017 and $184.8 million in principal amount of the 7.45% notes due in 2032.
 
Pepco’s long-term debt, at first-quarter 2010 end, was $4.5 billion while cash and cash equivalents were $38 million. Interest expense for Pepco was $88 million at the end of the first quarter. We expect the redemption of senior notes to lower the interest burden of the company.
 
Pepco’s first-quarter earnings were 16 cents per share, falling short of 3 cents from the Zacks Consensus Estimate. The Zacks Consensus Estimates for second-quarter 2010, fiscal year 2010 and fiscal year 2011 are 21 cents per share, 95 cents per share and $1.22 per share, respectively.
 
Despite Pepco Holdings’ stable customer base, high priced contracts, and gradually improving fundamentals at its core regulated gas and electric utility operations, we expect the company to face stiffer competition from its regulated peers. We presently retain a short-term Zacks #3 Rank (Hold) on the stock.
 
Based in Washington, District of Columbia, Pepco Holdings is a diversified energy company. The company operates in two divisions, Power Delivery and Competitive Energy.
 
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