Business context and reporting period
This is the Form 10-Q for the quarter ended September 30, 2013, filed November 12, 2013. The filing is for NRG Yield, Inc., not Clearway Energy, Inc.; investors should verify the requested company and filing identity. NRG Yield was formed as NRG’s vehicle for contracted power-generation and thermal assets. Its portfolio included 1,324 net MW of contracted generation and thermal infrastructure with 1,098 net MWt of steam and chilled-water capacity. Weighted average remaining contract life was approximately 16 years.
The company completed its IPO on July 22, 2013. It owns 34.5% of NRG Yield LLC and consolidates its results; NRG’s 65.5% interest is reported as noncontrolling interest. Accordingly, 2013 and 2012 comparisons combine post-IPO consolidated results with predecessor carve-out results and are not fully like-for-like.
Financial performance and position
Amounts below are in millions of dollars unless noted.
| Metric | Three months ended September 30 | Nine months ended September 30 |
|---|---|---|
| Revenue, 2013 / 2012 | $95 / $47 | $227 / $133 |
| Operating income, 2013 / 2012 | $45 / $11 | $95 / $28 |
| Net income, 2013 / 2012 | $40 / $4 | $85 / $8 |
| Operating cash flow, 2013 / 2012 | Nine months: $103 / $20 | |
| Capital expenditures, 2013 | Nine months: $232 |
- Third-quarter operating margin was approximately 47% versus 23% in 2012; nine-month operating margin was approximately 42% versus 21%. These are calculated from reported revenue and operating income.
- Third-quarter interest expense was $13 versus $5; nine-month interest expense was $24 versus $25. Nine-month net income included $54 earned by the predecessor before the IPO; after the IPO, net income was $31, of which $22 was attributable to noncontrolling interest and $9 to NRG Yield, Inc. Class A holders. Reported post-IPO EPS was $0.39.
- At September 30, cash was $121 and restricted cash $91. Management reported liquidity of approximately $272, including cash, restricted cash, and availability under the revolving facility.
- Total debt was $1,167, up from $807 at December 31, 2012; $147 was current. Fair value was $1,170. The company reported compliance with required debt covenants.
- Nine-month cash flows: $103 provided by operations, $293 used in investing, and $289 provided by financing. Financing included $468 of IPO proceeds and $707 of dividends and returns of capital to NRG.
Material changes versus prior comparable periods
- Revenue rose 102% in the quarter and 71% for the nine months, primarily as Marsh Landing began commercial operations in May 2013 and Alpine, Avra Valley, and Borrego entered service in late 2012 or 2013. Renewable MWh sold increased to 263 thousand from 109 thousand in the quarter and to 764 thousand from 385 thousand year to date.
- Higher operating costs and depreciation reflected the newly operational projects. Equity earnings increased, principally due to CVSR reaching commercial operations; its final phase entered service in October 2013.
- Debt increased mainly with project financings and construction-to-term conversions. The company’s public-company structure, equity ownership, and reporting changed with the July IPO.
Outlook, risks, and unusual items
- On October 31, the company declared an initial prorated dividend of $0.23 per Class A share, payable December 16, 2013, and stated subsequent quarterly dividends would be $0.30 per share ($1.20 annualized). Dividends remain subject to available capital, market conditions, and legal and regulatory requirements. Management said liquidity and operating cash flows should be adequate for operations, investment, debt service, and dividends; no formal earnings guidance was provided.
- Cash grants are important to project economics. Alpine and Borrego grant applications were reduced by sequestration to $65 million and $36 million, respectively. CVSR’s grant was reduced to $188 million; grant proceeds had not arrived by the first bridge-loan maturity, and NRG paid the amount due on the company’s behalf under its guarantee. Any CVSR grant proceeds available for distribution must first reimburse NRG. A further CVSR grant application of approximately $215 million was expected. Grant shortfalls could increase depreciation and affect earnings.
- Key risks include project operations and outages, weather and fuel or power-price changes, counterparty performance, regulation and environmental requirements, refinancing and access to capital, substantial indebtedness, and the company’s ability to sustain and grow dividends. Approximately $718 million was the company’s pro-rata share of non-recourse debt at unconsolidated affiliates, which may constrain distributions.
- GenConn refinanced project debt in September. The company reported no legal proceedings. Disclosure controls were considered effective, while integration of systems and processes—and assessment of related internal controls—was ongoing.
Most important facts for investors to verify
- Confirm that this NRG Yield, Inc. 2013 filing is the intended filing, given the Clearway Energy, Inc. request metadata.
- Assess the effect of the IPO’s partial ownership and NRG’s 65.5% noncontrolling interest when interpreting consolidated earnings and cash flows.
- Track cash-grant approvals, timing, sequestration reductions, CVSR bridge-loan reimbursement obligations, and related guarantee exposure.
- Review project-level debt maturities, current maturities, interest-rate hedges, covenant requirements, and affiliate and non-recourse obligations.
- Evaluate whether operating cash generation and available liquidity can support maintenance needs, growth investment, debt service, and the stated dividend level.