Pepco Plans Capital Restructuring - Analyst Blog
March 06 2012 - 12:17PM
Zacks
Pepco Holdings, Inc. (POM) announced its plan
to offer up to 15,584,415 shares of common stock pursuant to an
automatic shelf registration statement previously filed with the
Securities and Exchange Commission. The price of this common stock
offering will be $19.25 per share.
As per the agreement, the underwriters have an option to
purchase 2,337,662 additional shares of common stock within a
period of 30 days following the offering to cover over-allotments,
if any.
Pepco Holdings intends to utilize the proceeds from its latest
offering for repaying short-term debt obligations, providing
capital to its utility subsidiaries, ensuring working capital
funding and fulfilling other general corporate purposes.
The company issues notes and common stocks for meeting its
obligations and requirements intermittently. Previously,
Pepco Holdings completed a similar common stock offering program on
December 2008, with 14.0 million shares at a public offering price
of $16.50 per share. The company used the net proceeds from this
offering to repay short-term debt obligations.
This offering has a strong impact on the financial leverage of
the company, particularly on its debt-equity ratio. As of December
31, 2011, Pepco Holdings’ debt equity ratio was 51%.
With an increase in shareholders equity and a portion of the
proceeds of this offering to be used for the repayment of
short-term debt, we expect a decline in the company’s debt equity
ratio in the near term. At the same time, the company’s interest
expenses and debt burden will also decrease, and is likely to be
offset by an increase in tax expenses.
Pepco Holdings reported mixed results in fiscal 2011. The
company has a strong cash balance of $109 million compared with the
year-ago figure of $20 million. It made significant investments in
its infrastructure and has similar plans lined up for the coming
years. We believe that these positives will add value to
shareholders interest, but at the same time we are cautious about
the uncertainties related to its pending rate cases.
Based in Washington, District of Columbia, Pepco Holdings Inc.
is involved in the transmission and distribution of electricity, as
well as delivery and supply of natural gas. The company’s major
peers include FirstEnergy Corp. (FE) and
Constellation Energy Group Inc. (CEG).
Pepco Holdings currently retains a Zacks #4 Rank (short-term
Sell rating).
CONSTELLATN EGY (CEG): Free Stock Analysis Report
FIRSTENERGY CP (FE): Free Stock Analysis Report
PEPCO HLDGS (POM): Free Stock Analysis Report
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