Infrastructure

What Is Going on at NRG?

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Electric utility NRG Energy Inc. (NYSE: NRG) posted a surprise adjusted full-year net loss Monday morning of $91 million ($0.34 per share). On a GAAP basis, the loss totaled a whopping $19.46 per share, on a net loss of $6.44 billion. Non-cash impairment charges totaled $5.09 billion for the year, including $3.55 million related to asset impairments and $1.54 million related to goodwill impairments.

At the same time, NRG said it would cut its annual dividend beginning in the current quarter from a previous $0.58 per share to a new level of $0.12 per share. The reduction saves the company about $145 million a year.

Not many things went right for NRG in 2015. Its yieldco, NRG Yield Inc. (NYSE: NYLD) posted adjusted EBITDA of $720 million in 2015, up from $582 million in 2014, but net income fell from $99 million to $55 million.

NRG said the low commodity cost environment and resulting impairments led to a $3 billion non-cash income tax expense “related to a valuation allowance offsetting the Company’s net deferred tax assets.” The expense was necessary because the impairments affected NRG’s cumulative and forecast book earnings. The company did say that the valuation allowance does not affect its ability to use its net operating losses against future taxable income.


The Greenco NRG Renew business has been brought back into the fold. It’s speculative to try to figure out why, but the announcement of the Greenco business  last fall indicated that NRG was trying to solve its problems of access to and cost of capital. Forming a new company to focus on its green energy business was supposed to simplify the parent company’s management and cost structure and, most important, to help NRG improve its balance sheet by reducing operating and capital expense.

NRG expected to save $150 million annually under the arrangement, an amount almost identical with the savings the company expects to see from cutting its dividend. NRG also expected to get a one-time gain of $210 million in a dropdown transaction of its Edison Mission Wind portfolio to NRG Yield through the Greenco.

As with most energy companies these days, everything boils down to cash and availability of financing. NRG reported Monday that it has $693 million in cash and about $1.37 billion available in a its revolving credit facility. The company also reported $404 million in restricted cash and $825 million in cash at non-guarantor subsidiaries.

To underscore the point, NRG sad that about 75% of its allocated capital in 2016 will go to debt reduction. The company guided adjusted EBITDA for 2016 at $3 to $3.2 billion and free cash flow before growth investments of $1 to $1.2 billion. Scheduled interest payments for the year total $1.09 billion, which is included in the calculations. The company’s long-term debt totaled $18.98 billion at the end of December.

Shares traded down nearly 3% Monday morning, at $10.76 in a 52-week range of $8.80 to $26.93. The consensus price target on the stock is $18.07.

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