Clearway Energy, Inc. — Filing Summary
Entity clarification: The supplied filing is for NRG Yield, Inc., not Clearway Energy, Inc. It is a Form 10-Q for the quarter ended June 30, 2013, filed August 14, 2013. The operating results are for NRG Yield’s accounting predecessor, a carve-out of assets acquired from NRG; NRG Yield, Inc. itself had no material activity before its July 2013 IPO.
Business context and reporting period
The predecessor portfolio comprised contracted renewable and conventional generation assets totaling 1,324 net MW, plus thermal infrastructure with 1,098 net MWt of steam and chilled-water capacity and 123 net MW of electric capacity. Management reported an approximately 16-year weighted-average remaining contract life for generation offtake agreements. CVSR was still under construction; about 62 net MW of its capacity was operating at quarter-end.
Key financial metrics
| Metric | Q2 2013 | Q2 2012 | Six months 2013 | Six months 2012 |
|---|---|---|---|---|
| Revenue | $79m | $42m | $132m | $86m |
| Operating income | $38m | $8m | $50m | $17m |
| Net income/(loss) | $33m | $(1)m | $40m | $4m |
| Operating margin, approximate | 48% | 19% | 38% | 20% |
- Cash flow, six months: Operating activities used $11m, versus $58m provided in 2012. Investing activities used $221m, including $182m of capital expenditures. Financing activities provided $227m. Ending cash was $17m, versus $27m a year earlier.
- Balance sheet at June 30: Total assets were $2.074bn and total liabilities $1.377bn. Debt was $1.202bn, comprising $1.177bn external and $25m affiliate debt; $126m was current. Cash plus restricted cash was $84m. Restricted cash was $67m.
- Liquidity and credit: Management described liquidity as $84m at June 30 and considered liquidity and operating cash flows adequate for expected needs. A $60m revolving credit facility was entered into in connection with the July IPO; it was not part of the June 30 balance sheet.
- Other items: Derivative liabilities totaled $49m and derivative assets $6m at June 30. A 1% interest-rate change was estimated to change rolling 12-month interest expense by about $1m. The company reported compliance with debt covenants.
Material changes versus the prior comparable period
- Q2 revenue rose 88% and first-half revenue rose 53%, primarily because conventional generation assets and additional solar projects entered commercial operation; thermal revenue also increased.
- Net income improved to $33m in Q2 from a $1m loss, and to $40m for the first half from $4m. Lower interest expense contributed to the change, particularly because the prior-year period included a $10m loss tied to the ineffective portion of an Alpine interest-rate swap.
- Operating costs increased as newly operational projects added operating and maintenance costs and depreciation. First-half operating cash flow declined by $69m year over year, with management attributing the change to the timing of working-capital payments.
- Debt increased from $807m at December 31, 2012 to $1.202bn at June 30, 2013, while property, plant and equipment declined from $1.598bn to $1.492bn, reflecting project construction completions, grant accounting and other asset movements.
Outlook, commentary, risks and unusual items
- Management expected a $0.23 per-share dividend during Q4 2013. The filing states distributions depend on cash available, board discretion, seasonality, debt restrictions and subsidiary distributions; future dividends are not assured.
- The July 22, 2013 IPO issued 22,511,250 Class A shares at $22 each and generated about $468m net proceeds. Of this, $395m purchased units from NRG and $73m went to NRG Yield LLC for general corporate purposes, including expected CVSR construction funding. The issuer owned 34.5% of NRG Yield LLC and NRG retained 65.5% and voting control.
- Renewable cash grants were reduced by federal sequestration. Alpine’s and Borrego’s grant applications were reduced to $65m and $36m, respectively. CVSR’s grant and construction financing were a notable uncertainty: the filing reported a $374m cash-grant bridge loan and that NRG paid the first maturity on the project’s behalf after grant proceeds were not received by the due date. Future proceeds, if received and distributable, would reimburse NRG first.
- CVSR was expected to reach commercial operation in October 2013; delay, cost overruns, grant shortfalls or offtake-agreement penalties could affect cash available for distribution. The filing also describes operating and weather risks, counterparty and regulatory risks, transmission constraints, environmental obligations, interest-rate exposure and dependence on NRG.
- Regulatory matters included a pending settlement seeking an $875,000 annual rate increase for NRG Harrisburg, subject to Pennsylvania PUC approval, and a pending FERC complaint concerning fuel availability and potential sanctions for GenConn facilities.
- Management said disclosure controls were effective. Internal-control integration work was ongoing. The filing reported no legal proceedings, defaults on senior securities or other information under the corresponding items.
Important facts for investors to verify
- Confirm the issuer and accounting basis: this is an NRG Yield filing, and historical results are predecessor carve-out results rather than standalone public-company results.
- Check subsequent filings for CVSR’s commercial-operation timing, grant approvals and payments, bridge-loan repayment, and any effect on distributions.
- Reconcile the stated $84m liquidity figure to its cash and restricted-cash components, and confirm the status and availability of the $60m revolver.
- Review actual cash available for distribution, debt-service and project-level distribution restrictions, and whether the announced Q4 dividend was declared and paid.
- Assess NRG’s continuing control and service-provider role, related-party arrangements, and the concentration of generation offtake with major counterparties.