Business context and reporting period
Clearway Energy, Inc. is identified in the request metadata; the filing itself is for NRG Yield, Inc. and covers the quarter ended June 30, 2018, with six-month comparisons to June 30, 2017. The company owned 5,118 net MW of contracted generation capacity, with an approximately 15-year weighted-average remaining offtake contract duration, plus thermal infrastructure of 1,392 net MWt and 133 net MW of electric capacity. Most generation output was sold under long-term contracts.
Financial and operating highlights
| Metric | Q2 2018 | Q2 2017 | Six months 2018 | Six months 2017 |
|---|---|---|---|---|
| Operating revenue | $307 million | $288 million | $532 million | $509 million |
| Operating income | $144 million | $125 million | $193 million | $179 million |
| Net income | $96 million | $44 million | $96 million | $42 million |
| Net income attributable to NRG Yield, Inc. | $79 million | $28 million | $95 million | $25 million |
| Basic EPS, Class A and C | $0.77 | $0.29 | $0.94 | $0.26 |
| Net cash from operating activities | Not separately provided | Not separately provided | $181 million | $169 million |
Economic gross margin, a non-GAAP measure, was $308 million in Q2 versus $291 million, and $530 million for the six months versus $513 million. Q2 growth reflected higher renewable generation, UPMC thermal sales and improved conventional plant availability. Six-month operating cash flow rose $12 million; investing cash use was $166 million and financing cash use was $62 million.
At June 30, 2018, cash and cash equivalents were $130 million and restricted cash was $139 million. Total liquidity was $697 million, including $428 million available under the revolver; the company reported no revolver borrowings and $67 million of letters of credit. Total debt was $5.970 billion, including $651 million classified as current; balance-sheet long-term debt was $5.244 billion. Total assets were $8.448 billion and total liabilities $6.161 billion. The company said it was compliant with debt covenants.
Material changes versus prior comparable periods
- Q2 operating revenue increased $19 million and attributable net income increased $51 million. For the first half, revenue increased $23 million and attributable net income increased $70 million.
- Interest expense fell $19 million in Q2 and $39 million in the first half; management attributed the declines primarily to fair-value changes in interest-rate swaps. The six-month 2018 results included a $31 million derivative gain, versus a $9 million loss in 2017, making comparisons sensitive to mark-to-market movements.
- Renewable generation volumes increased, including higher wind output at Alta and increased solar generation at CVSR. Conventional availability improved. Thermal activity included UPMC project sales.
- Q2 and six-month 2017 comparative financial statements were retrospectively recast for common-control asset transfers; the filing says this did not change historical attributable net income, EPS or dividends.
Outlook, transactions and risks
- As of July 31, 2018, all regulatory approvals for GIP’s proposed acquisition of NRG’s ownership in the company and NRG’s renewable development and operations platform had been obtained; management expected closing in Q3 2018. Completion remained subject to closing conditions.
- The company said it expected comparable cash dividends to continue in the foreseeable future, subject to available capital, market conditions and contractual requirements. It declared a subsequent quarterly dividend of $0.320 per share. No earnings or cash-flow guidance was provided in the supplied filing text.
- Acquisitions included the 154 MW Buckthorn Solar project, the UPMC thermal project and a small California fuel-cell project. Buckthorn’s 25-year PPA with Georgetown, Texas commenced in July 2018. The company also agreed to acquire the 527 MW Carlsbad project for $365 million, with closing expected in Q4 2018 and contingent on the GIP transaction. An 80 MW Hawaii solar opportunity was offered but remained subject to negotiation and independent-director approval.
- The revolver was refinanced to extend maturity to April 2023 and reduce its stated borrowing spread from LIBOR plus 2.50% to LIBOR plus 1.75%. The company raised $77 million gross through its Class C ATM program in the first half; approximately $38 million remained available as of July 3.
- Key risks include substantial indebtedness and refinancing needs, the $345 million 2019 convertible notes due in February 2019, variable-rate debt, weather and generation variability, counterparty performance, regulatory changes, and continued dependence on NRG services and growth opportunities during the transition. Management estimated $2.6 billion of counterparty exposure over the next five years. Its pro-rata share of non-recourse debt at unconsolidated affiliates was approximately $814 million and may constrain distributions.
- Management said the NRG/GenOn noteholder litigation was resolved by a July 2018 term sheet. A separate securities class action concerning alleged disclosures before a 2015 stock offering remained in litigation; the company stated it intended to defend itself. The filing says litigation outcomes and potential liabilities could differ materially from recorded reserves.
- The company expects to adopt lease accounting Topic 842 in 2019 and stated that it expects recognition of lease liabilities and right-of-use assets; the potential impact was still under review and could be material.
Important facts for investors to verify
- Confirm the status and final terms of the GIP transaction and any effects on NRG-provided management, operating services and future asset acquisition rights.
- Review the 2019 convertible-note repayment or conversion arrangements and the timing of other current debt maturities.
- Assess how much of reported earnings growth reflects recurring operations versus interest-rate derivative fair-value changes and tax-equity HLBV allocations.
- Track whether operating cash flow and available liquidity cover debt service, planned acquisitions, maintenance spending and dividends, including restricted-cash limitations.
- Verify Carlsbad closing conditions and purchase economics, as well as performance and contracted revenue commencement for Buckthorn and UPMC.
- Monitor litigation developments, counterparty credit exposure, and the company’s quantified balance-sheet impact from adopting Topic 842.