Constellation Energy to use cash to acquire generating assets, fulfill debt repayment commitment

By Jennifer Lanning Drey

Portland, Ore., Feb. 22 - Constellation Energy Group, Inc.'s foremost strategic objective over the next two years will be deploying cash to acquire generating assets, which will drive greater efficiency and realized cash flows for the company while reducing volatility, Mayo A. Shattuck III, chief executive officer of Constellation, said Monday.

"Looking forward, we see attractive opportunities to grow our generation footprint in the current depressed asset and commodity price environment," Shattuck said during Constellation's fourth-quarter and year-end earnings conference call.

The company had $3.4 billion of cash and cash equivalents at Dec. 31 and has earmarked roughly $1 billion of that amount to fund such strategic growth initiatives over the next 12 to 24 months, he said.

"Our sizable cash and liquidity balances provide us with the opportunity to invest in generating assets," Shattuck said.

The company is interested in acquiring generating assets in regions where it has a structural imbalance between the load it serves and the physical generation it owns or contracts, he said.

Debt repayment commitment

Constellation will also use $600 million of the $3.4 billion year-end cash balance in the first quarter to complete its commitment to repay $1 billion of outstanding debt following the close of its transaction with EDF Group in November, Jonathan (Jack) Thayer, chief financial officer of Constellation, said later in the call.

The company sold a 49.99% interest in Constellation Energy Nuclear Group, LLC to EDF for $4.5 billion.

To date, Constellation has retired about $900 million of debt, including the 2009 repurchase of $400 million of tax-exempt and zero-coupon bonds and the 2010 successful tender for more than $480 million of 7% bonds due 2012, he said.

Constellation expects to complete the remaining portion of the commitment by calling $120 million of tax-exempt bonds before the end of the first quarter, Thayer said.

The company also plans to use $700 million of its cash to repay net tax liabilities related to the EDF transaction.

The remaining cash will be held on the balance sheet to support working capital needs, Thayer said.

De-risking efforts

During 2009, Constellation completed a series of strategic initiatives aimed at de-risking the company, including divesting non-core trading and marketing businesses and entering into new liquidity facilities specifically tailored to its ongoing businesses, Shattuck said.

The company repaid $3.7 billion of outstanding debt during the year.

Net available liquidity increased to $5.6 billion at the end of 2009, up from $2.3 billion at the start of the year.

"This past year, Constellation's net available liquidity balance shifted from an area of concern to an area of strength," Thayer said.

The CFO said the company's cash position increased as a result of strong performances by its core businesses during the year as well as the return of collateral in the form of cash and letters of credit from non-core divestitures.

Constellation's credit lines were reduced by about $3.3 billion in the fourth quarter per the terms of the bank consent agreements related to the EDF transaction, but the company partially offset the reduction by entering into just over $1.1 billion of new credit facilities in the fourth quarter.

Based in Baltimore, Constellation Energy is a supplier of energy products and services to wholesale and retail electric and natural gas customers.

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