AES Corporation (AES) announced that it intends to redeem $400 million of its outstanding senior secured notes. The notes, which have a coupon rate of 8.75%, are due in 2013.
The notes will be redeemed on a pro rata basis on May 15, 2010 at a redemption price equal to 101.458% of the principal amount thereof to be redeemed. The interest on the notes payable on such date will be paid to the holder of record on May 1, 2010.
AES Corporation is highly leveraged, with its debt more than double its equity, translating into a high debt-equity ratio of 202.1%, although its long-term debt-to-capitalization is only 67% at fiscal-end 2009. The company closed fiscal 2009 with cash and cash equivalents of $1.8 billion and short-term investments of $1.6 billion.
Also, in November 2009, AES Corporation announced its equity sale, representing a 15% ownership stake with a wholly owned investment subsidiary of China Investment Corporation. The transaction is expected to close in the first half of fiscal 2010 and will generate $1.6 billion of new equity to fund future growth opportunities.
Arlington, Virginia-based AES Corporation is a global power company that owns and operates electric power generation and distribution businesses in 29 countries. The company’s operations are divided into three segments: Regulated Utilities, Contract Generation and Competitive Supply. The company clocked 2009 revenue of $14 billion and owns and manages $40 billion in total assets.
AES Corporation’s businesses are spread across 5 continents in 29 countries, representing a geographically diverse earnings base. Geographic disparity in the target markets of AES Corporation has resulted in a portfolio that is well-positioned for capitalizing on regional differences in power prices and weather driven demand. This insulates the company from specific risks in any single region.
By fuel type, AES’s capacity portfolio is approximately 41% coal, 39% gas, 16% hydro and 4% oil. Revenue is equally derived from generation and distribution, and almost 80% of generation revenue is under long-term contracts.
AES Corporation’s focus on long-term supply contracts exposes it to commodity price risk. The company would be unable to pass on any escalation in prices of coal and natural gas to its customers. Profitability at its regulated utilities depends on regular rate relief around the globe from their service countries.
Also, the company’s substantial generation capacity under construction in emerging countries may face cost escalation and overruns. This will impact the company as it is locked into fixed earnings by virtue of its long-term delivery contracts for utility projects.
AES Corporation is a non-dividend paying stock in an industry (utilities and energy merchants) that has a high average dividend yield (Zacks industry average is 3.7%).
The assets of the company in emerging countries may face political risk. The nationalization of utilities in Venezuela in 2007 is a case in point. Thus we maintain our near-term Sell recommendation on the Zacks #4 Rank stock.
(We are reissuing this article to correct a mistake. The original article, issued yesterday, should no longer be relied upon.)
Read the full analyst report on “AES”
Zacks Investment Research
