Dynegy Inc. (DYN:US), the Houston-based power producer that exited bankruptcy protection last year, agreed to acquire five coal-fired Ameren Corp. (AEE:US) power plants to double its generating capacity in Illinois.
Dynegy will pay no cash in the transaction and Ameren will spend at least $133 million to buy back three natural gas-fueled plants from the subsidiary it’s selling, the companies said in separate statements today. The unit will come with $825 million of non-recourse debt and includes Ameren’s retail and marketing assets in the state.
Wholesale power prices have dropped alongside the price of gas, which reached a 10-year low in New York last year. The decline has cut profit margins for coal power plants, which in some cases also face environmental regulations that require additional investment. Edison International’s Edison Mission Energy, the owner of five Illinois coal plants, filed for bankruptcy in December.
“We expect that this transaction will reduce business risk and improve the predictability of our future earnings and cash flows, which is expected to strengthen Ameren’s credit profile and support Ameren’s dividend,” Thomas Voss, chairman and chief executive officer of St. Louis-based Ameren, said in a statement.
The sale marks Ameren’s exit from the merchant generation business, in which it sells power at wholesale market rates instead of state-regulated prices. The company announced Dec. 20 it would get rid of the unit to focus on regulated operations in Illinois and Missouri. Ameren recorded a $1.6 billion charge in the fourth quarter to write down the value of the plants.
Lazard Ltd. advised Dynegy on the transaction. JPMorgan Chase & Co. advised Ameren and provided a fairness opinion. Greenhill & Co. also provided a fairness opinion and Wachtell, Lipton, Rosen & Katz was legal counsel to Ameren.
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