An Ameren Corporation (AEE) subsidiary Ameren Illinois Company has priced $300 million of senior secured notes. The notes carry an interest rate of 3.25% and will mature in 2025 at 99.943% of the principal amount. The company expects to close the transaction on Dec 10, 2014.
The objective of issuing senior notes is to utilize the net proceeds to pay back a part of Ameren Illinois’ outstanding short-term borrowings.
As of Dec 3, 2014, Ameren’s debt-to-equity ratio was 84.2%. The completion of this transaction may have a negative impact on the company’s future debt-to-equity ratio.
Ameren Illinois has made full use of the prevailing market conditions to issue new notes bearing a lower coupon rate. This will enable the company to reduce its cost of capital.
Ameren issues senior notes frequently to refinance its existing debts. On Jun 23, 2014, Ameren Illinois priced 4.3% senior secured notes worth $250 million, due in 2044. Another business wing under Ameren, Ameren Missouri, priced 3.5% senior secured notes worth $350 million in Apr 2014.
Ameren’s steady debt refinancing program helps reduce interest burden. In May 2014, the company repaid senior unsecured notes worth $425 million and accrued interest. Ameren’s interest charges decreased 3.4% in third-quarter 2014, primarily due to strategic debt refinancing. The company can further reduce its interest charges through this strategy.
Apart from utilizing external sources to accumulate funds for debt repayment and other corporate activities, Ameren efficiently maximizes internal funds through stable operating activities. In the first nine months of 2014, the company’s operating cash flow came in at around $1.2 billion. Ameren’s operating cash flow had edged up 0.2% to roughly $1.69 billion in 2013.
A strong cash generating capacity along with utilization of external funds allows Ameren to modernize its utility systems, provide reliable services to its customers and maximize shareholder wealth through payment of dividends.
Ameren currently has a Zacks Rank #3 (Hold). Some better-ranked stocks in the same industry include Black Hills Corporation (BKH), PG&E Corporation (PCG) and Consolidated Edison, Inc. (ED). Black Hills and PG&E Corporation hold a Zacks Rank #1 (Strong Buy), while Consolidated Edison carries a Zacks Rank #2 (Buy).
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