NRG (NYSE: NRG) IPO Investing

Brian Hicks

Written By Brian Hicks

Posted June 11, 2013

NRG Energy Inc. (NYSE: NRG) was in the midst of eager anticipation last week as talk swirled around a big move.

And on Friday, NRG Yield, a newly formed unit of the largest independent U.S. electricity generator, filed for IPO with the Securities and Exchange Commission (SEC), revealing its plans to raise up to $400 million in an initial public offering of class-A shares.

The Princeton, New Jersey-based NRG Yield unit was formed in 2012 to operate conventional as well as renewable power assets; revenues reached $184 million in its first 12 months ending March 31, 2013. It initially filed confidentially on February 13, 2013, and the company will be listed on the NYSE under the symbol ”NYLD.”

NRG, as the leading power generator in the U.S., has a capacity of roughly 47,000 megawatts and is adding on with developments in solar generation, as well as thermal and privately-funded electric vehicle charging infrastructure. Its three utility companies – Reliant, Green Mountain Energy, and Energy Plus – service more than 2 million customers nationwide.

Stepping Out

With this move, NRG Yield Inc. is stepping out from its NRG Energy wing to become a premier company in its own right. It will build a mix of solar, wind, and gas-fired power, and it will pay consistent and growing cash dividends to shareholders, it states.

According to Bloomberg:

NRG Yield expects to be “a premier company for investors seeking stable and growing dividend income from a diversified portfolio of lower-risk high-quality assets,” it said in the filing.

The company already has three natural gas and/or duel-fired facilities. It also has seven large scale solar power plants that are utility ready and one wind farm that it will be adding to in future endeavors. Its solar energy systems are in two portfolios and have a total capacity of 1,324 megawatts. These assets are all under long-term contracts.

Pacific Gas & Electric, for one, has a 25-year contract to purchase electricity from both segments.

Its parent company will still retain outstanding class-B common stock after the IPO, it said in its filing, as well as a majority vote in the unit’s interests and assets.

Bank of America Corp. (NYSE: BAC), Goldman Sachs Group Inc. (NYSE: GS), and Citigroup Inc. (NYSE: C) are the underwriters on the IPO.

The filing did not disclose any number of shares that it plans to sell or an expected price range. The amount of money the company plans to raise will establish its registration fees. As that happens, the final size of the IPO could be different.

Allocating Funds

With the $400 million it plans to raise from its IPO, proceeds are already being put in motion.

The construction of its 250-megawatt California Valley Solar Ranch, which is expected to be completed in October 2013, will see a good portion of those funds.

The company also has a 48.95 percent stake in the solar farm located in San Luis Obispo County, California, which received a $1.2 billion U.S. loan guarantee. Funds will also contribute to this.

And it has first rights to acquire NRG’s interest in other assets, including four of the solar farms. It has the rights to the remaining stake in California Valley Solar Ranch, 49.5 percent of a BrightSource Energy Inc. solar-thermal plant, and a 51 percent share of NRG’s Agua Caliente project, of which the other 49 percent is owned by MidAmerican Energy Holdings Co. as part of Warren Buffett’s Berkshire Hathaway Inc. (NYSE: BRK-A). Both of the latter have received similar U.S. loan guarantees.

Taking Notice

In the midst of NRG Yield’s IPO filing, NRG has been steadily on the rise and closed in New York higher than it has in more than ten months last Friday. It also stated that it will see an annual interest savings of $49 million in 2014 after it redeems a $575 million senior note and amends the price of credit facilities.

In May, it was noted that with NRG solar farms and the addition of natural gas power at its GenOn coal plants, operation would soar above the current $25 million target.

When NRG Yield Inc. does officially break out on its own, it is perfectly positioned for success.


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