Dynegy, Energy Capital pair up for $3.3B deal to buy 8,731 MW of fossil fuel plants

Dive Brief:

Dynegy and Energy Capital Partners have created a joint venture named Atlas Power, aimed at acquiring 8,731 MW of generating capacity located in the ERCOT, PJM, and ISO-New England markets from French utility Engie SA. The power plants represent Engie's entire fossil fuel portfolio, SNL reports.
Dynegy and ECP say they have secured financing for the $3.3 billion acquisition, as well as related transaction fees and working capital, with $2.25 billion in committed debt facilities and $1.185 billion in equity commitments from its owners.
Dynegy will own 65% of the joint venture and will be responsible for day-to-day management and operation. The deal targets $90 million in annual synergies, the companies said.

Dive Insight:

Dynegy yesterday announced a large investment in natural gas generation, which makes up more than 8,000 MW of the total portfolio being acquired from ENGIE. President and CEO Robert Flexon said the deal continues a transformation of the company begun five years ago, "to build a long term sustainable portfolio in key competitive markets."

Flexon called the deal "a compelling value for our shareholders as it is the right assets, in the right markets, at the right price and unlocks considerable synergy value by utilizing our proven integration model and corporate platform."

But at least one analyst is questioning whether it's the right move for the company to unlock value in what is considered a bear market for merchant generators, reports SNL Energy.

SNL Energy points out that the deal expands Dynegy's reach into regulated markets and gives it a 35,000 MW portfolio. Following completion of the deal, 43% of Dynegy's capacity would be in the PJM market, 15% in New England, 18% in the Midwest, and 13% in ERCOT. The company also has smaller amounts of generation in New York and California.

Dynegy said it expects the deal to close in the fourth quarter, and will require approval from the Federal Energy Regulatory Commission, Public Utility Commission of Texas, and expiration of Hart-Scott-Rodino waiting periods.

"We think the creative financing structure minimizes debt capital markets risk to the joint venture," said Tyler Reeder, a Partner at Energy Capital. “The joint venture will benefit tremendously from Dynegy’s strong operating capabilities, commercial risk management, and focus on environmental compliance and safety."

The joint venture's financing includes a $1.85 billion secured debt facility provided by Dynegy’s relationship banks, a $400 million junior bridge facility provided by Energy Capital, and $1.185 billion in equity from Dynegy and Energy Capital. Energy Capital will also purchase $150 million in Dynegy common stock at $10.94/share and, upon closing, will own approximately 15 percent of Dynegy.