Exelon (EXC) Unit To Issue $1.2B Bonds To Refinance Debts

Exelon Corporation’s (NYSE:EXC) unit, Commonwealth Edison Company (ComEd), announced that it priced $1.2 billion aggregate principal amount of its First Mortgage Bonds. The bond sale is scheduled to close on Jun 27, 2016.

Details of the Issue

ComEd will issue two series of bonds. While one series will comprise $500 million, 10-year bond maturing on Jun 15, 2016, having an interest rate of 2.55%, the other will be a $700 million, 30-year bond maturing on Jun 15, 2046, having an interest rate of 3.650%.

Utilization of the Proceeds

It is a common corporate practice to issue new debts to fund ongoing projects and for other purposes. ComEd will use the proceeds from the sale of the bonds to refinance outstanding principal amounts of long-term debt, repay a portion of its outstanding commercial paper obligations and use the balance for general corporate purposes.

ComEd has successfully invested nearly $1.7 billion annually in capital expenditures across hundreds of projects.

EXELON CORP Price

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Low Interest – a Major Help for Utilities

Utilities are capital intensive and need to have a continuous inflow of funds to carry out their organic growth and infrastructure upgrade projects. This is essential in maintaining an uninterrupted supply of basic amenities like electricity, fresh water and gas.

The recent decision of the Fed to retain the present interest rate is definitely a boon for the utilities. In a low rate environment, the capital intensive utility sector can lower its interest burden.

Our View

Currently, Exelon’s outstanding debt is a little higher than the industry average as it needed to issue fresh debts to fund the Pepco Holding acquisition. The acquisition is expected to increase cash flow by $700 million to $850 million in the 2017–2019 time frame. This will help the company to meet its debt obligation.

The Fed might decide to hike interest rates in the second half of 2016, subject to economic recovery, which will go against the utilities. So, we believe it is quite sensible for the company to raise funds while rates are still low.

Zacks Rank

Exelon currently has a Zacks Rank #3 (Hold). Some better-ranked stocks in the same space are Avista Corp. (NYSE:AVA) , CenterPoint Energy, Inc. (NYSE:CNP) and DTE Energy Company (NYSE:DTE) , all carrying a Zacks Rank #2 (Buy).

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