May 7, 2020 / 6:25 PM / 19 days ago

Elliott, Fidelity pump $1.4 billion into utility CenterPoint Energy

BOSTON/NEW YORK (Reuters) - CenterPoint Energy on Thursday secured $1.4 billion of new backing from investors including hedge fund Elliott Management and mutual fund Fidelity Management, putting the embattled energy delivery company on a path to cutting its debt and considering a possible sale.

The investment in the Houston-based utility operator is made up of $725 million of mandatory convertible preferred shares, financed by Elliott and Bluescape Energy Partners, with an additional $675 million in common shares bought by Fidelity and other long-term investors. They are MFS Investment Management and Capital Group, a source familiar with the matter said.

The financing will allow CenterPoint Energy to pay back debt and strengthen its credit profile as well as eliminate the need to raise new equity by 2022, the company and the firms said in a statement.

CenterPoint’s stock jumped more than 12% on the news by midday, giving it a market value of $9 billion. The company had long-term debt of $13.8 billion as of Mar. 31.

It has been a turbulent period for CenterPoint. Chief Executive Scott Prochazka departed his role in February, weeks after the company’s request to increase rates was rejected by the Public Utility Commission of Texas which imposed a smaller uplift. The suboptimal rate case decision was seen as a surprise by analysts at the time.

Chief Financial Officer Xia Liu left the company in April.

Alongside the cash, the deal with the investors sees two new directors added to CenterPoint’s board who have deep roots in the energy and public utilities businesses and vast connections in Texas: former Halliburton Chief Executive David Lesar and Barry Smitherman, a former chairman of regulatory bodies the Texas Railroad Commission and the PUCT.

The two will also sit on a new committee that will review strategic alternatives for CenterPoint, alongside interim CEO John Somerhalder and two other directors. The body, due to report back to the CenterPoint board by October, will look at scenarios including the sale of parts of CenterPoint’s business or the entire company, the source added.

Should sale activity follow, it wouldn’t be the first time that Elliott has entered a utility’s stock and that has been the outcome: Midwestern utility Evergy Inc said in March it would explore options including a merger as part of an agreement struck with Elliott.

The U.S. utility space has also seen regulated companies offload unregulated parts of their businesses to focus on their core operations, which have more stable revenue streams. Earlier this year, CenterPoint announced it would sell two of its services units for $850 million.

While the company is running a process to identify a full-time CEO, the new group may also opt to stick with Somerhalder, the interim CEO, for the time, especially if a potential sale is in the offing, the source added.

Advisors as disclosed by the company were Moelis, Goldman Sachs and JP Morgan. Law firms Wachtell and Baker Botts worked with CenterPoint, and Ropes & Gray were the legal advisor to Elliott.

Reporting by Svea Herbst-Bayliss and David French; Editing by Bernadette Baum

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