Clearway Energy, Inc. — Filing Summary
Registrant note: The supplied filing is a Form 10-Q for NRG Yield, Inc., not Clearway Energy, Inc. It covers the quarter ended September 30, 2014, and was filed November 5, 2014. Dollar amounts below are in millions unless noted.
Business context and reporting period
NRG Yield owned contracted renewable and conventional generation and thermal infrastructure assets. At September 30, its portfolio had 2,984 net MW of generation capacity, plus 1,346 net MWt of thermal capacity; management described about 18 years of average remaining contract duration for generation offtake agreements, weighted by cash available for distribution. Results consolidate NRG Yield LLC, which the company controlled; NRG held a 55.3% noncontrolling interest.
Comparisons require care: the 2013 figures are retrospectively adjusted for assets transferred from NRG under common control, while the company’s 2013 periods also include predecessor results before its July 2013 IPO.
Financial performance and position
| Metric | Q3 2014 | Q3 2013 | Nine months 2014 | Nine months 2013 |
|---|---|---|---|---|
| Revenue | $161 | $126 | $435 | $261 |
| Operating income | $70 | $63 | $175 | $113 |
| Net income | $31 | $49 | $91 | $95 |
| Net income attributable to NRG Yield, Inc. | $6 | $9 | $16 | $9 |
| Class A diluted EPS | $0.20 | $0.39 | $0.62 | $0.39 |
| Operating cash flow | Not stated for quarter | Not stated for quarter | $194 | $90 |
Q3 operating margin was approximately 43% versus 50% a year earlier; nine-month operating margin was approximately 40% versus 43%. Interest expense rose to $41 in Q3 from $21, and to $97 for nine months from $32. Nine-month net income fell slightly despite higher revenue and operating income, largely reflecting higher interest and taxes. Dividends per Class A share were $0.365 in Q3 and $1.045 for the first nine months.
At September 30, cash and cash equivalents were $372, restricted cash $54, and current assets $555 against current liabilities of $302. Total debt was $4,083 ($157 current; $3,926 long-term), versus $1,783 at year-end 2013. Total assets were $5,899 and total liabilities $4,285. The company reported liquidity of approximately $849, including cash, restricted cash, and revolver availability; its $450 revolving facility had no cash drawn and $27 of letters of credit outstanding. It reported compliance with required debt covenants.
Nine-month investing cash use was $1,121, principally for the Alta Wind and NRG asset acquisitions; financing cash provided was $1,240. Cash increased $313 to $372. Capital expenditures were $28 for the nine-month period.
Material changes and unusual items
- Revenue grew 28% in Q3 and 67% for nine months, driven by acquisitions and projects entering commercial operations. The Alta Wind acquisition contributed $18 of Q3 revenue; Energy Systems and El Segundo also contributed to the increase.
- In August, the company acquired seven Alta Wind facilities totaling 947 MW for $923 cash consideration, plus assumed approximately $1.6 billion of non-recourse project debt. The purchase-price allocation remained provisional; the assets contributed $18 of revenue and a $7 net loss from acquisition through September 30.
- In June, the company acquired El Segundo and two solar projects from NRG for $357 cash consideration and assumed $612 of project debt. This common-control transfer was recorded retrospectively.
- The July Class A share offering raised $630 net, and NRG Yield Operating LLC issued $500 of 5.375% senior notes due 2024. The company also issued $345 principal amount of 3.50% convertible notes due 2019.
- Acquisition-related transaction costs were $2 in Q3 and for the nine-month period. Depreciation and amortization rose materially, including from acquired assets and facilities entering service.
Outlook, commentary, risks, and contingencies
- Management said liquidity, operating cash flow, and revolver availability were expected to be adequate for financial commitments, operating and maintenance capital spending, and debt service. It expected comparable cash dividends to continue in the foreseeable future, subject to available capital, market conditions, and legal requirements. A $0.375 per-share dividend was declared November 5 for payment December 15, 2014.
- On November 4, the company agreed to acquire NRG facilities for expected cash consideration of $480 plus assumed project debt and working-capital adjustments, subject to customary closing conditions; it expected to fund the transaction with cash and revolver borrowings.
- Key risks cited include maintaining and growing dividends, acquisition execution and financing, substantial indebtedness, operating and maintenance costs, weather and outages, fuel and electricity price volatility, counterparty performance, regulatory changes, and environmental requirements. Proposed EPA rules addressing carbon emissions could affect generating operations; their final impact was uncertain.
- Interest-rate swaps had a net liability position; the company said discontinuing all swaps at period-end would have required approximately $45 of payment. A 1% change in rates was estimated to change rolling 12-month interest expense by about $2. A 1% decrease in market rates would have increased debt fair value by an estimated $265.
- The company reported approximately $1.7 billion of estimated counterparty credit exposure for the next five years under long-term contracts, though most counterparties were utilities with strong credit quality and regulatory support. A San Francisco underground-tank monitoring violation was settled in July for $123,000; the tanks had not leaked. No legal proceedings were reported in Part II, and the filing said there were no material changes to previously disclosed risk factors.
- Disclosure controls were considered effective at quarter-end; integration of acquired operations, systems, and internal controls was ongoing. No specific financial guidance was provided.
Important facts for investors to verify
- Confirm the issuer identity: this source is NRG Yield, Inc., despite the request naming Clearway Energy, Inc.
- Assess debt service and refinancing exposure after the acquisitions, including project-level debt, interest-rate hedges, and the proposed $480 acquisition.
- Review the provisional Alta Wind purchase accounting and performance, including its reported post-acquisition net loss.
- Evaluate dividend coverage and the distinction between consolidated earnings, cash available for distribution, and the portion attributable to Class A shareholders.
- Check the eventual terms and closing status of the announced NRG asset purchase, and the development of carbon-emissions regulation and related operating costs.