Report: Exelon's Texas merchant subsidiary looks to address debt

Dive Brief:

Reuters, citing anonymous sources familiar to the matter, reported yesterday that Exelon Corp has brought an adviser on board to help it deal with mounting debt at its ExGen Texas Power LLC subsidiary.
The parent company reportedly tapped PJT Partners Inc to help address $650 million in debt, but neither the power company or investment bank would confirm the news.
In January, Moody's Investor Services downgraded a $660 million senior secured term loan B that ExGen Texas Power (EGTP) has due in September 2021, to Caa1 from B2 with a negative outlook.

Dive Insight:

Exelon's merchant power subsidiary may be the latest indicator of systemic problems in organized power markets. Reuters reports that the company has hired advisers to help it address debt, following a trend of other dim signs for independent power producers.

EGTP owns five power plants in Texas, according to Moody's: two combined-cycle gas plants, two gas-fired steam boilers, and a small simple-cycle plant. Cheap gas has been pushing coal off the grid in some markets, and Texas' abundant wind power now appears to be having the same effect on gas.

While the state's energy demand has continued to climb, Texas now gets more energy from wind farms than nuclear plants. And as wind is dispatched first, it has driven down energy prices in recent years. Alongside declining natural gas and restrictions on coal, revenues for independent producers have dropped precipitously.

Moody's warned that EGTP's credit rating "will be downgraded further ... should the ERCOT market deteriorate more than expected or should the assets have operating problems resulting in additional calls on capital."

Moody's also noted in January that should credit restructuring be necessary, "high recovery prospects for Term Loan B creditors are unlikely."

This is not the first sign of trouble in Texas' power market. In a recent earnings call with reporters and analysts, NRG President and CEO Mauricio Gutierrez said the independent power producer model is "now obsolete and unable to create value over the long term."

Adjusted EBITDA for NRG's generation segment was $254 million lower than 2015, the company said. In its Gulf Coast region, a $93 million decline was due to lower average realized energy margins in Texas, due to a drop in power prices.