Clearway Energy, Inc. quarterly report, Q2 FY2014

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NRG Yield, Inc. — Q2 2014 Form 10-Q

Reporting period: Quarter and six months ended June 30, 2014. The filing is under the name NRG Yield, Inc.; it describes a contracted U.S. portfolio of conventional and renewable generation and thermal infrastructure. As of June 30, NRG Yield, Inc. owned 34.5% of NRG Yield LLC and consolidated it, with NRG’s 65.5% interest reported as noncontrolling interest. The filing notes that the Acquired ROFO Assets were retrospectively combined in comparative periods because they were transfers under common control.

Financial results and position

  • Q2 revenue: $134 million, up 64% from $82 million. Operating income was $51 million, up 34%; operating margin was approximately 38%, versus 46%. Net income was $34 million versus $35 million, while net income excluding pre-acquisition earnings of the acquired assets was $25 million versus $34 million. Net income attributable to NRG Yield, Inc. was $6 million; diluted EPS was $0.26.
  • First-half revenue: $274 million, up 103% from $135 million. Operating income was $105 million versus $50 million; net income was $60 million versus $46 million. Excluding pre-acquisition earnings of the acquired assets, net income was $43 million versus $45 million. Net income attributable to NRG Yield, Inc. was $10 million; diluted EPS was $0.42.
  • Drivers and costs: Revenue growth principally reflected Marsh Landing and El Segundo entering service, the acquired solar projects, and Energy Systems. Higher depreciation and interest expense partly offset operating growth. First-half interest expense rose to $56 million from $11 million.
  • Cash flow, six months: Operating cash flow was $73 million, compared with a $19 million outflow in 2013. Investing cash outflow was $204 million, including $357 million paid for the acquired assets; financing cash inflow was $159 million. Cash and cash equivalents ended at $87 million, versus $59 million at year-end.
  • Liquidity and debt: Management reported liquidity of approximately $560 million, including cash, restricted cash, and availability under the $450 million revolving facility; none was drawn at June 30. Total debt was $1.999 billion, including $119 million current, compared with $1.783 billion at year-end. The company reported compliance with required debt covenants. Total assets were $3.236 billion and total liabilities $2.163 billion.
  • Dividends: Q2 Class A dividend was $0.35 per share; a $0.365 quarterly dividend was declared July 29 for payment in September. Dividend payments remain subject to available capital, market conditions, and legal requirements.

Material changes, outlook, and risks

  • On June 30, the company acquired El Segundo, TA High Desert, and RE Kansas South for $357 million cash plus assumed project-level debt of $612 million. The assets added 590 MW of stated net capacity and their results were retrospectively included in the financial statements; pre-acquisition earnings were not attributable to NRG Yield, Inc.’s public shareholders.
  • The company agreed to acquire the 947-MW Alta Wind portfolio for $870 million, subject to working-capital adjustments, and assume $1.6 billion of project-level debt. Closing was expected in Q3 2014, subject to customary conditions including regulatory approvals. Subsequent to quarter-end, the company issued 12.075 million Class A shares for $630 million net proceeds and NRG Yield Operating LLC issued $500 million of 5.375% senior notes due 2024 to help fund the acquisition. Following the equity issuance, the company reported ownership of 44.7% of NRG Yield LLC.
  • Management said liquidity, operating cash flows, and revolving-facility availability were expected to meet financial commitments, operating and maintenance capital expenditures, and debt service. It expected comparable cash dividends to continue in the foreseeable future, based on then-current circumstances; no earnings or revenue guidance was provided.
  • Key exposures include substantial indebtedness and financing access, interest-rate and derivative valuation movements, generation outages and weather, fuel and transmission constraints, counterparty performance, regulation, and the ability to maintain dividends and execute acquisitions. The company estimated $1.1 billion of counterparty exposure over the next five years, largely relating to long-term power contracts. A 1% interest-rate change was estimated to affect rolling 12-month interest expense by about $2 million.
  • Other items: a $15 million loss in accumulated other comprehensive loss was expected to be reclassified to earnings over the next 12 months. A San Francisco environmental matter was settled in July 2014 for $123,000; the tanks involved had not leaked. The filing reported no legal proceedings in Part II, no material change in risk factors, and effective disclosure controls.

Important facts for investors to verify

  1. How the acquisitions, assumed project debt, and subsequent equity and bond financing affect leverage, interest costs, and cash available for distribution.
  2. Whether operating cash flow and asset distributions support the declared dividend after maintenance spending, debt service, and acquisition-related needs.
  3. The comparability of reported results: retrospective inclusion of acquired assets and exclusion of their pre-acquisition earnings from income attributable to public shareholders.
  4. Alta Wind closing conditions, actual transaction terms, and performance under the portfolio’s operating and offtake arrangements.
  5. Derivative and interest-rate exposures, project-level debt covenants, and counterparty and regulatory risks.