Public Service Enterprise Group Inc. (PEG) has announced refunding $250 million of its outstanding $800 million senior notes at a lower coupon rate while deferring the maturity date. PSEG Power LLC, a wholly-owned subsidiary of Public Service Enterprise commenced an offer to exchange up to $250 million of Senior Notes due 2011 with a coupon rate of 7.75%.
The notes will be exchanged with newly-issued Senior Notes due 2020 which would have a coupon rate of only 5.125%. The exchange offer will expire on Apr 26, 2010.
Public Service over the years has taken several measures to improve financial stability and reduce the overall risk profile of the company, which include opportunistically monetizing non-strategic assets, reducing international exposure, significantly hedging future generation business and paying down debt.
Public Service has been pursuing growth opportunities in the core U.S. market and increasing capital allocation in projects that provide good risk-adjusted returns. Public Service’s strong balance sheet and cash flows provide substantial financial flexibility and a cushion in the present challenging business environment.
The company ended fiscal 2009 with a total liquidity of $3.4 billion comprising $350 million of cash and $3 billion of available credit facility, and a long term debt-to capitalization ratio of 46.5% (Zacks Industry Average is 90.1%).
Public Service stays focused on maximizing shareholder value through share price appreciation and increasing dividend payouts. The company has been paying regular common stock dividends since 1907. This February, Public Service increased its quarterly common stock dividend pay-out by 3% to $0.3425 per share from $0.3325 earlier. This indicates an annual dividend of $1.37 per share yielding 4.4% (Zacks Industry Average 3.7%) on the current market price.
Public Service Enterprise Group, based in Newark, New Jersey, is a diversified utility holding company. Its operations are mostly located in the Northeastern and Mid-Atlantic parts of the U.S. Public Service Enterprise’s robust portfolio of regulated as well as non-regulated utility assets provides the company with a steady earnings base and significant growth prospects over the long run.
The company has been striving to optimize generation margins by improving cost-structure, performance and reliability of its nuclear as well as fossil units. Management has taken several measures to improve financial stability and reduce the overall risk profile of the company.
Public Service Enterprise has been pursuing growth opportunities in the core U.S. market and increasing capital allocation in projects that provide good risk-adjusted returns. Going forward, a low-cost nuclear fleet, assumed rate relief and added generating capacities will drive the company’s earnings growth.
However, the present unfavorable macro backdrop, rising cost of coal, higher pension and financial costs, and power-price volatility might overshadow the positives. Thus we maintain our short-term market underperform recommendation on the Zacks #4 Rank (‘Sell’) stock.
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