Zacks_Analysts' Blog : AES Subsidiary To Issue Notes - Analyst Blog

The AES Corporation (AES) announced that it would issue $1.25 billion worth of senior notes in a private offering by its newly formed, wholly-owned special purpose indirect subsidiary, Dolphin Subsidiary II, Inc.

The private offering of senior notes consists of $450 million in aggregate principal amount with a coupon rate of 6.50% due 2016 and senior notes worth $800 million in aggregate principal amount with a coupon rate of 7.25% due 2021. The offering is expected to close on October 3, 2011.

AES will use the proceeds from the offering to finance the pending acquisition of DPL Inc. (DPL). Earlier, in April 2011, the companies announced that AES will acquire DPL in a transaction valued at $4.7 billion. AES will acquire all of the outstanding shares of DPL for approximately $3.5 billion in cash, or $30 per share, representing an 8.7% premium over DPL’s closing share price on April 19, 2011. AES will also assume DPL's net debt of $1.2 billion.

Dolphin has been created by AES for the sole purpose of raising acquisition financing for the DPL transaction. Subject to and upon the consummation of the merger, Dolphin will merge with DPL, with the latter continuing as the surviving company and obligor under the notes.

Upon closure of the transaction, DPL will become a wholly-owned subsidiary of AES. The parties expect to complete the merger in the fourth quarter of 2011 or first quarter of 2012. Completion of the merger transaction is however dependant upon pending regulatory approvals from the Federal Energy Regulatory Commission and the Public Utilities Commission of Ohio.

Upon completion of the transaction, DPL’s common stock will cease to trade publicly, and each outstanding share of DPL’s common stock will be converted into a right to receive a cash amount of $30 per share, without interest. AES estimates post-acquisition its adjusted earnings per share for fiscal year 2011 to be in the range of $0.97–$1.03.

AES Corporation currently retains a Zacks #2 Rank, which translates into a short-term 'Buy' rating. This is in sync with its peers like Ameren Corporation (AEE) and Dominion Resources Inc. (D).

Based in Arlington, Virginia, AES Corporation operates globally and is involved in the generation, distribution, transmission, and sale of electricity to end-users in the residential, commercial, industrial, and governmental sectors.