愛依斯電力 (AES) 2009 Q3 法說會逐字稿

Welcome to the AES Corporation Third Quarter Earnings conference call. All lines have been placed in a listen-only mode until the question-and-answer session. (Operator Instructions). Today's call is being recorded. If anyone has any objections, you may disconnect at this time. I would now like to turn the call over to Mr. Ahmed Pasha, VP of IR. Sir, you may begin.

Thank you. Good afternoon, everyone, and welcome to our third quarter 2009 earnings conference call and webcast. Joining me today are Paul Hanrahan, our President and CEO, Victoria Harker, our EVP and CFO, and other senior members of our management.

Before we begin this morning, I would like to remind you that any statements made herein about future operating results or other future events are forward-looking statements under the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from such forward-looking statements. A discussion of factors that could cause actual results or events to vary is contained in the filings and in the Investor section of our website, www.aes.com. With that, let me turn the call over to Paul.

Thanks, Ahmed. Good afternoon. Thanks to all of you for joining us today. As you've seen from our releases this morning, in addition to the positive news regarding our financial results for the quarter, we've also got some good news about a new partnership that is developing with China Sovereign Wealth Fund, the China Investment Corporation.

On today's call, we're going to cover two topics. First I'll discuss our announcement this morning related to our new partnership with China Investment Corporation, or CIC, and then Victoria will discuss our results for the quarter and outlook for the remainder of the year, and then we'll turn to Q&A.

Right now I'd like to spend a few minutes discussing CIC's investment in AES. This is really a game changer for AES. There are three specific strategic benefits that I see that result from this new partnership with CIC. First, this investment not only provides unprecedented financial flexibility, it accelerates our ability to execute on our development pipeline and also to execute attractive M&A opportunities that would require access to significant capital. It effectively unlocks the value of our development pipeline which has been receiving no value in the market because we did not have the capital to execute. This deal changes that.

Second, this $1.58 billion equity infusion strengthens our balance sheet, creating more equity to grow the Company which will improve all of our credit metrics over time. And third, this relationship with China Sovereign Wealth Fund strengthens our ties to a region where the bulk of the growth for the new power generation capacity will occur in the world. Asia as the future of the power sector in China with its equipment suppliers, design engineers, construction companies, and capital suppliers is at the very heart of this future.

As we disclosed in the press release issued this morning, we announced that AES and CIC are commencing a strategic partnership in which CIC will invest $1.58 billion in exchange for 125.5 million shares priced at $12.60 per share. Once this transaction closes, CIC will own approximately 15% of AES' common equity and as part of this transaction agreement, AES has agreed not to issue any additional common equity for 12 months as we don't expect to need any additional equity during this time.

We've also signed a nonbinding letter of intent with CIC whereby CIC will invest $571 million in exchange for a 35% interest in our wind generation business which includes more than 1,500 megawatts in operation and under construction and a development pipeline of more than 6,600 megawatts. Both transactions, of course, are subject to regulatory approvals which we believe will conclude over the next 60 to 90 days.

We are enthusiastic about our partnership with CIC and the potential it holds for AES' shareholders by accelerating our growth, improving our financial flexibility, and providing greater access to the fastest growing power markets in the world. With that, let me now turn it over to Victoria who will discuss the third quarter results as well as our outlook for the remainder of the year and then we'll go to Q&A. Victoria?

Thanks, Paul, and good afternoon, everyone. As Paul mentioned, we had a strong third quarter as we continued to benefit from strong operations which helped us overcome foreign currency headwinds and lower demand in the US as well as other geographies. We're particularly pleased at our earnings, proportion of free cash flow, and subsidiary distributions continue to meet and in fact exceed our full year expectations for 2009. Our results this quarter continue to build on those trends, borne out by the performance improvement initiatives we launched in 2008.

During the quarter we continued to increase the profitability of our businesses globally while at the same time reducing corporate overhead and improving our working capital, both of which drove cash to the bottom line. These initiatives helped us overcome the negative impact of the devaluation of several currencies such as the Brazilian Real as well as lower fuel prices and reduced demand in North America. In what continued to be a volatile commodity market, lower fuel prices did benefit us in some countries outside the US during the third quarter, particularly in Chile and the Philippines. Likewise, higher demand in Northern Chile and Columbia also contributed favorably to our results this quarter as we began to see some markets climbing out of recessionary trends.

I will now walk you through the specific drivers of our financial results for the quarter followed by a discussion of our year to date results and an update on our full year 2009 guidance. Compared to 2008, our gross margin for the quarter increased by $46 million to $1 billion. We were very pleased with this given FX headwinds of $79 million primarily related to Brazil where the Real depreciated 13% during the quarter. Throughout this year, we continue to see the benefits of our diversified portfolio of businesses in terms of both regional economic growth and fuel types and this quarter was no exception.

For example, like many domestic energy providers, our operations in New York were adversely affected due to lower gas prices this quarter which declined by more than 65% since last year. The decline in gas prices also resulted in lower demand for coal based generation affecting our New York plant where there was a (inaudible) decline compared to earlier this year. However, given the recent upward trends in spot and forward gas prices, we have started to see our coal fired plants become competitive once again. In fact, we're now operating our plants in New York at full available capacity. This also increased our forward sales to nearly 50% of our expected generation in 2010, hedging somewhat against future volatility.

At the same time and consistent with last quarter, our generation businesses in both Chile and the Philippines continue to perform well. In northern Chile where the copper mining industry is a large power consumer, we continue to see strong demand as well as availability. As a result, our Termo Andes gas fired plant was able to increase its production by 18% compared to last year.

In Central Chile, profitability also improved due to a 33% decline in fuel prices as well as strong contribution from our new, more efficient thermal power plants, including our 152 megawatt Guacolda III facility. On a proportional basis which represents AES' economic interests in our portfolio of businesses, we earned a gross margin of $555 million this quarter. This is roughly one quarter of our full year guidance for this metric. Compared to the same period last year, there was a decrease of $46 million, but primarily driven by unfavorable foreign currency exchange rates.

Now turning to adjusted EPS, during the quarter we generated adjusted earnings per share of $0.26 which was $0.05 lower than the same period last year. As you may recall, 2008 third quarter earnings included a $0.07 gain associated with a tax related adjustment of two of our businesses in North America. So comparatively, both quarters were roughly equal in terms of earnings without the impact of this onetime tax adjustment.

All in all, we were very pleased with performance, particularly given foreign currency headwinds which in and of itself was a $0.05 drag on per share earnings relative to last year.

Now turning to our cash flow results. For the quarter, our consolidated operating cash flow increased $225 million or 28% to $1 billion, reflecting higher gross margin and improved working capital at our Latin America and Asia generation businesses. The improvement in working capital was primarily driven by faster collection of receivables at our generation businesses in both Chile and Pakistan. Lower investment in fuel inventories as a result of the drop in fuel prices also contributed to improved working capital.

On a proportional basis, AES' operating cash flow increased $123 million or 29% to $553 million. This increase on a percentage basis is in line with the consolidated results and reflects the improvements at both levels.

This brings me to free cash flow, which we define as operating cash flow less maintenance capital expenditures. Our consolidated free cash flow for the quarter increased $222 million or 34% to $884 million. The improvement largely reflects the increase in consolidated operating cash flow since maintenance expenditures remained relatively flat compared to last year.

On a proportional basis, free cash flow increased to $459 million. About 95% of the $129 million improvement in proportional free cash flow came from higher proportional operating cash flow, while the remaining residual amount is attributable to lower maintenance CapEx.

Subsidiary cash distributions to the parent for the third quarter were $202 million. This is consistent with our expectations and in line with last year's total, evidence that our portfolio of businesses are continuing to perform well in a challenging economic environment.

Now turning to liquidity and cash metrics, as you can see by these measures, our capital structure work over the prior several quarters has put us in a very comfortable position to meet our current funding obligations with $1.4 billion in liquidity, including $707 million in cash. In fact, in October we voluntarily reduced the remaining portion of our senior unsecured credit facility. The subsidiaries have a very similar liquidity profile. There is currently more than $5.3 billion of liquidity and financial assets available to address about $1.4 billion of nonrecourse debt maturities due within the next 12 months at the subsidiaries.

I'd now like to discuss our year-to-date results and our outlook for the remainder of the year. Based on our results for the first nine months of 2009, we are very pleased with performance as year to date we have already delivered more than 75% of our key guidance metrics including earnings and cash flow. Accordingly, we're increasing the top end of our guidance range for adjusted EPS by $0.01 to $1.11 while increasing the lower end of our range by $0.02 to $1.07. Based on our year to date earnings of $0.91, we are expecting to earn approximately $0.18 in fourth quarter this year.

With respect to cash, we generated consolidated operating cash flow of $1.9 billion during the first nine months of the year with $250 million remaining to be achieved during the fourth quarter to meet our full year guidance. We do expect somewhat lighter consolidated operating cash flow in the fourth quarter due to expected onetime tax payment of approximately $320 million at Eletropaulo Utility in Brazil of which we hold a 16% economic interest.

Consolidated free cash flow during the first nine months was $1.5 billion. Although our year to date results exceed our full year guidance, our anticipated plant maintenance schedule in the fourth quarter remains on course. As a result, we expect CapEx to be spent during the fourth quarter of this year. Despite the higher maintenance spending in fourth quarter, we still expect our full year maintenance projections to be lower by approximately $50 million.

Accordingly, we're increasing our annual guidance for consolidated free cash flow by $50 million to $1.5 billion. Likewise, parent operating cash flow, which reflects subsidiary distributions, have also been strong year-to-date, at $959 million or 77% of the midpoint of our prior guidance range. As a result, we're maintaining our full-year guidance of $1.2 billion to $1.3 billion. On a proportional basis, we're also on track to meet or exceed our full year guidance. Based on our year to date performance and expectations for the fourth quarter, however, we are increasing the midpoint of our annual guidance for proportional free cash flow by $50 million to $850 million.

In closing, we're pleased with our progress year-to-date, both in regards to our financial performance as well as our ability to finance and develop projects in a difficult market.

With that, let me open the call up to any questions you may have.

+++q-and-a

(Operator Instructions). Lasan Johong, RBC Capital Markets.

Thank you. Congratulations on not just the quarter but the CIC transaction. Certainly should unlock a lot of value. First question is why, Paul, why the sale of the equity instead of a joint venture?

I think we're doing the joint venture at the wind level, but the thing I like about the equity at the parent level, it really allows us to deploy capital as we think makes the most sense. So it's an ability to get capital in at the parent level and then to deploy it where we can capture value with that equity for all the shareholders of AES. If you do a joint venture you're only capturing part of it.

Okay, so it's kind of more like a blind pull theory?

Something like that. I think -- CIC looked at our platform and they saw a great investment opportunity. They see all the -- they looked at things globally, and I think they looked at our global platform, our development pipeline, and just saw a tremendous opportunity to deploy capital, as a way to deploy capital. And much as we see it, too. And also I think they saw that with our pipeline and with the other opportunities that are out there in the power sector, it was a great place to put some capital. And they looked at the various platforms out there and thought that ours was probably the best one to take advantage of that. And from our perspective, it's a way not only to deploy capital, to get capital we can deploy, but it also is a way to effectively deleverage the Company by bringing in more equity which will, as I mentioned, really improve our credit metrics over time. So it accomplishes two things at once.

Understood. I'm assuming other than the board seat, they have no operational/management control of AES, correct?

That's correct. They will be nominating one director which will go through the normal bidding process of all directors. And their one director I should mention will have the normal fiduciary responsibilities of any director of a public company. So that director will not specifically be representing their interests but really has the obligation, the fiduciary duty, to represent the interests of all the shareholders.

Understood. That's great. Do you have a side agreement with CIC for them to stay out of the US operations in case Congress gets a little twitchy about Chinese owning US power plants?

No, what we have is the agreement in governance is such that we think it's not going to be a problem with the [sifius] process which is the process that we have volunteered to go through just to make sure everything is fine. That's a 60 to 90 day process. But we think given that there are no national security concerns, this should not be problematic. If you think about it, it's really, it's investment coming into our Company, much of which will be deployed in the United States buying US equipment. It could be US wind turbines, it could be solar panels from here in the US, so I think from that perspective and a political perspective, it's something that we don't think will be problematic.

One last question. What are some of the projects that you think would have had trouble going forward becoming viable with this investment?

I think -- as you know, we've got a development pipeline. I think that in the near term we've got a lot of wind projects and solar projects. For the wind business, I think we've really been constrained by our ability to have the equity capital. We've got about 1,200 megawatts in advanced development. If you work that out, that might be $600 million of investment that could occur over the next 18 months. If you look at other investments around the world, that's probably another $600 million. So you're looking at over the next 18 months there's the possibility that we could be deploying $1.2 billion of equity capital.

Now the screening process we go through and development process, I don't expect all of those will go forward. But a number of them would. And they're really across the globe. We have a number of projects which we've talked to people about in the past. But that allows us to take those forward without having to worry about having the equity capital.

The other piece though is it gives us some dry powder for M&A activity. So if we see some attractive opportunities, we will have dry powder to execute on those. But I just want to stress for people that we're going to be patient and we're going to be disciplined about how we spend that capital. We've got a good development pipeline which over time will use those proceeds. But if we see something in the meantime that looks attractive, we'd be prepared to act on that.

Thank you, Paul. Great transaction.

Amit Thakur, Bank of America/Merrill Lynch.

Good morning, Paul. Good morning, Victoria. Paul, in your opening remarks you talked about feeling like the market wasn't really giving you credit for your development pipeline and this transaction allows you to kind of unlock that value. So I guess I was wondering, can you talk just a little bit about the rationale behind kind of the discount to where your stock price has kind of been trading at the last few weeks for the transaction and up to today?

Yes, what we looked at was -- really it's pricing it off the last days closed. If you look at where we've been over the past few weeks, the past month, if you look at the past few months, we've been fairly volatile. Our view was, if we were going to go out and do a transaction, what kind of a discount would we pay to raise a $500 million or $600 million type of equity issuance? We might go up as high as $750 million and recognizing that this is a larger tronch of equity and we could transact all at once, like I said, it kind of fast forwards us through the issues with respect to improving the balance sheet, giving us some capital growth. We reached an agreement that I think both we and CIC felt was a fair number.

Okay. And then as far as kind of the de-levering aspect of the transaction that you alluded to as well, now did you guys get any pushback from the rating agencies that kind of drove this? Because it looked like Victoria kind of outlined a very manageable debt situation in the near term. Obviously they appreciate the need to I guess kind of prefund the equity component of your future developmental activities, but did you guys get any feedback from the rating agencies on this?

No, and in the short term I think what we're referring to is until we have the projects ready to go from an investment perspective, we'd look at some temporary pay downs and we'd be prioritizing those. But we're well within the range of our target ratios for the quarters and for our projection. So it's not responding to as much as finding opportunities where we can get some short term pay down of debt.

The intent here isn't to use this money to delever, but to grow. But to me, like I said, it's effective delevering in the sense that it's really it's improving the balance sheet, it's putting more equity in the balance sheet. These will be investments that we're not borrowing money to go fund. These are investments that we've raised equity. So from a debt perspective, it's actually accretive to our debt metrics.

Thanks. I'll jump back in the queue.

Jeff Bronchick, RCB Investment Management.

Good morning from the shareholders. I'm having a real problem with how you structured this deal. I'm looking at your May book and you spent the better part of the past year pounding everybody about how cheap your stock is and how whatever you look at -- page 69, mid teens numbers, liquidity in great shape, no great need for equity staged out, your project pipeline is a long term situation. So unless you're going to announce a deal tomorrow which -- for $1 billion, I just, I really don't understand why we're being diluted to this degree versus a convert above market, a situation where as time goes on you could raise more equity, unless there's some very specific guaranties that you're getting that you're going to be a preferred look/see in China on things outside of your wind. I understand the wind development deal, but I don't understand -- it's as if you did this deal and priced it out of distress rather than strength and I'm missing that entirely. Please help.

Sure, happy to address that. We look at, as I mentioned before, I think the market clearly hasn't been looking at our development pipeline as being something that's got much value. We've got a number of deals that are going to be needing financing over the next several months. And the one thing that I wasn't comfortable with was the idea that we would go out and issue equity as needed to go fund those investments. We could have taken the approach, and we thought about it, to wait until we needed the capital, try to go out and do an equity issue, and hope that the price at that point in time is good. But you've seen our price over the past several months and it's been volatile.

I think that the tradeoff we decided made sense was to go out and raise capital at a price that we thought was reasonable. Not ideal, I would have loved to have issued equity at a higher price. But we think that what's going to drive the value of the Company going forward, we've got our construction pipeline which is going to add some earnings and we think is going to continue to accrete to value. But looking beyond 2011, where's the growth going to come from? Where's the value accretion going to come from? And we need capital to go do that.

And I think from our perspective, we aren't going to be borrowing more money to go out and build out that growth pipeline, so it really meant we had to get equity capital. And this is a way to do it. But I think the strategic benefits that you mentioned which is the working with CIC and the potential opportunities that may unlock also, I think are -- people have asked me, why CIC, why not somebody else? I do think that because of their position in Asia, I think because of the various thing that they see, there may be some opportunities where we can cooperate to do some other things together. So I really do see it as a game changer for us. I think it will lead to more deals than we would otherwise have and it positions us to capitalize on those deals.

So -- in growth capital, did you -- was this deal shopped in any sense? I mean did you -- what other avenues of capital raising did you consider with other partners? I just don't understand the discount.

No, the discount -- I agree with you. This was very heavily negotiated. But what we looked at was, if we had to go out and issue some equity, if we did a marketed deal, what kind of discount would we see? What kind of market reaction would we see? What kind of fees would we pay? And our view was that this number -- you're right, you could argue maybe it should have been a little bit tighter, but my view was it's worth it to get the capital secured and to start building out that growth pipe, to start funding and executing the growth pipeline. And we think long term it's definitely going to be in the value of shareholders that we go do that.

Well Paul I would say that you've done an excellent job post the 2000 and 2003 disaster, but this really raises the bar for your performance. And I just -- on behalf of the shareholders I have to say I'm a head shaker. Good luck with it.

Oaky, well you've said it -- what you're saying is exactly right. We've now got to deliver on good quality projects which are going to build on our growth pipeline and I'm convinced we can do that.

Brian Russo, Ladenburg Thalmann.

Hi, good afternoon. Can you talk in more detail about how the new capital will be deployed? In the past it was always a little bit of a disconnect between when the capital expenditures were made and when we then saw returns on these sometimes long development cycle projects. I realize wind projects have a shorter construction period versus say coal and other types of generation. Could you just give us a sense of how soon this capital could be deployed and we could start seeing the returns showing up?

Yes, I think if you look at the renewable sector, and I'd include in that some of the solar projects, we have a number of those in our joint venture with Riverstone. But if you take wind and solar, these are typically you're looking from the time you start construction to the time you're in operation, you're really talking about 12 months, maybe as much as 18 months. But you're pretty quickly turning that into returns coming back. The power projects will be longer. I think you're talking about for a combined cycle plant it maybe is a little over two years and for a coal fired project it's a little bit over three years.

We also see that there will be some acquisition opportunities which we really haven't been able to execute in the past because we didn't have substantial capital to go do that. I think now having capital in today's environment will be a good thing. I think we've looked at a number of opportunities where we could go out there and find attractively priced acquisition opportunities. This will give us the ability to go transact on those when we see them. But as I've tried to stress, the discipline will become even more important now that we have that capital to make sure we're going after good quality projects with good returns that have the right risk profile. But that's how we're thinking about it. And as Victoria mentioned, in the short term we'll probably just use this to pay down some debt which will essentially reduce some of the carrying costs of having that money. But the intent would be to go out and then use this capital to start getting into high yielding investments as quickly as we can.

Assuming a project financing combined with the equity offering and wind sell down, could we look at this as roughly $4 billion worth of potential development projects?

Yes, it would be sort of that order of magnitude, that's right.

Okay, and could you just elaborate on M&A activities? I know you've got -- there's the [BNDS] stake that's been slow to develop, but is that a possibility? And then I think you had a recent public offering for a company called AEI which has some assets in your, that might be complimentary to your portfolio. Can you comment on that?

Yes, I'll just comment generically. But I think all of those kinds of opportunities that you mentioned would be of interest to us. A lot is going to depend on what are the kind of returns we can see and how would things fit with us strategically? So I'd broaden that from the list you mentioned to really be a whole host of things. But what I'm really focused on is where are we going to get the most strategic benefit, where are we going to get the highest returns for investors in the long term? So I think, I'm not going to comment on any specific ones, but I see a much broader set of opportunities. We're going to be, quite frankly, very selective about what we decide to spend this money on.

Okay, so to understand, the capital you just raised isn't committed to any specific project a this time but you'll reevaluate your brownfield and greenfield development opportunities and make some announcements over the next several months?

Absolutely, yes.

Okay, and then just lastly, the 8K you filed this morning touches upon the 2010 and 2011 guidance and that you may elect to use $1 billion, $1.5 billion to temporarily pay down recourse debt which could be dilutive to 2010 by roughly $0.07 to $0.09. Could you elaborate on that please?

Yes, this is Victoria. What we were trying to do with that is not necessarily to suggest that any particular dollar amount would be used to pay down debt. We were trying to give a sense just from a calculation perspective, assuming you had the ability, cash in hand at the end of March, going through all the regulatory approvals, and you had the ability to do $1 billion to $1.5 billion of debt pay down, that's roughly what the incremental impact to the 2010 guidance as it currently stands would be.

So we're just trying to give a rough measure. We're not at this point committed to doing that set of numbers in particular. We're looking at what projects actually could come up for investments in that timeframe as well. But we are committed to giving revised guidance for all of the measures for 2010 when we get to that call including what the plan is for what's come up as cash on hand from this by then.

Okay, great. Thank you very much.

Gregg Orrill, Barclays Capital

Thanks very much. Just wanted to go back over the cash coming in from CIC for the wind venture. And just how that would be structured ongoing. Would there be additional cash commitments down the road for new projects? And if not, would they, would the investor own 35% of those projects? Just looking for a little bit more detail.

Let me start out by saying that that deal is in letter of intent stage, it's a fairly detailed letter of intent. But we have to go to actual documentation and do some additional due diligence which we expect would probably take a couple three months. But the intent would be that they would come in as a true joint venture partner and that we would fund those, with that money, we would then go fund the investments. As more money is needed for that venture, there would effectively be capital calls. And Brian Miller is on the phone and if I don't get this exactly right he can correct it. The understanding would be that we would both have the ability to step up those capital calls at that same percentage. I don't think there's any obligation for them to do that, but that's the expectation that they would want to maintain that same ownership interest over time. That would be used to fund all the new projects that we have been doing in the global wind business.

So looking forward, the base case is we own roughly two thirds, they own -- well 65%, they own 35%. And any new capital would come in on those ratios.

Michael Hussey, Mid Continent Capital.

Hi, just three quick ones. Just the comment about strengthening your balance sheet and improving your credit metrics, I really am kind of floored by that considering that at every turn you have taken the opportunity to say that we're confident in our balance sheet strength and we don't feel we need to improve our credit metrics anymore than we already have. So I'd like you to elaborate on how you view that as a positive from this.

Secondly, to double back on the question about issuing equity at $12.60, I'll just say it really simply, the optics are really bad when you buy back stock at $14.00 in August and September of last year and you're turning around and issuing equity at $12.60 today. I'd like you to react to that.

And then thirdly, can you provide any more granularity other than just a vague overarching observation about how this is going to help you get new business in a meaningful way in Asia? Thank you.

In terms of credit metrics, I think we are -- we've spoken over the last couple of quarters we had done a significant amount of capital structure work including some previous debt pay downs as well as refinancings and some extension of maturity. So I think that, as we've spoken to in a fair amount of detail, does position us very well and we've had ongoing discussions with the rating agencies regarding that. I think in terms of what this allows us to do, particularly in the short term, while we're not going to have the ability to deploy all of this capital when it becomes available, is that we will do additional pay downs because that will be the opportunity at the moment. How much then gets turned around when the projects become available for financing, I think we're obviously going to continue to measure that. But it does give us the ability to really accelerate what we had already started about 18 months ago in terms of our capital structure work.

On the optics I guess what I would say is, we've got to get beyond the optics in this one because what we're trying to do is what we think is the right thing for the Company, what's the right thing for shareholders in terms of creating some long term value for the Company. So you're right, looking back, wish we hadn't bought the stock back when we did. But what we're trying to do is say given where we are now and given the opportunities we have in front of us, we think this is the right thing to do for the Company.

And I think in terms of what this means in terms of new opportunities, we already have some opportunities in Asia. I think some of the ways that this could be helpful for example is for our Vietnam project to the extent we were to use any Chinese equipment for the Vietnam project, Chinese financing is more likely to be achievable with CIC as a partner there. So we think just in terms of the financing, getting some things done.

We also think just in terms of deal flow, CIC has access to a lot of deal flow we think there that may create some opportunities for us. No guaranties, but we think it really is going to be a partnership where we can help them, they can help us. We may decide to work on projects together where we would jointly invest as AES and as CIC. So I think there are a number of opportunities where that could benefit us. But despite that, I think it's still a good opportunity for us to -- what I'm really focused on is we've got a good development pipeline, we need capital to grow, and this is something that we want to fund those with equity because although I think we're fine with respect to credit metrics, for us to get the flexibility to go out and do some more and to have access to that capital, we felt this was the best way to go do it. And it really does give us financial flexibility that will allow us to continue to grow the value of the Company.

Paul, I'll just echo something that was said a few minutes earlier. You guys have done a phenomenal job for your bond holders and this is a wonderful deal for them as well. The pressure is really on now to turn your capital management efforts on behalf of your shareholders into something special. So again, good luck.

Douglas Clifford, Omega.

Like your other shareholders, I can't stop scratching my head on the issuance of stock at $12.60 when you recently repurchased stock at much higher prices. I understand the qualitative benefits of having CIC as a partner, but I'd just like to ask you what kind of quantitative benefits you put on this and can you give some really more detailed information that would justify in dollars and cents per share the issuance of stock at this discount?

Very simply, it's the ability to invest in projects that we think are going to yield 15% returns and to be able to add those to our portfolio. We think that is value accretive and it's quite frankly looking out -- as you know we've got a construction pipeline that's built in here. That's going to continue to give us growth in free cash flow, it's going to continue to give us growth in earnings. But looking out beyond that, where are we going to see growth in the Company, and we think we can invest these funds at greater than the cost of capital and that's what's going to accrete value to the shareholders.

And outside of the wind joint venture which could have been done as it's being done, at the wind subsidiary level, do you have these projects identified with CIC? Or is it something more than just capital that CIC is bringing to those projects?

No, what -- the projects that we have identified are the ones that are in our pipeline and that's really what we look as the opportunities to fund.

And so what additional benefit does CIC bring to those other than equity capital? Because that equity capital could have been raised without the discount to $12.60.

Yes, for example though, I think -- if you take one of our projects like Vietnam, I think the probability of success of getting the Vietnam project will be enhanced by having CIC as a partner. It will help us with respect to raising Chinese financing if that's the direction we decide to go. So I think in that specific case, that's one example of how it could help us. We have some other projects in China that we're exploring and one would be a project that would be another they could help us take that forward. Not only that, but help us evaluate the attractiveness of the various projects we're looking at.

So I do think there is some qualitative benefits, but you're right, from a quantitative standpoint we'll have to just deal with those one by one. But after spending enough time with the group in Beijing, understanding their capabilities and the kinds of things they do, I'm convinced that the qualitative benefits are something that we'll, looking back in a couple of years, we'll say, like I said it's a game changer for us. I think it's something that is going to be significant in terms of our ability to create value for shareholders.

Okay, thanks. Before leaving, I do trust you hear from your shareholders loud and clear that the pressure is on the Company to justify this discount.

Fair enough. Thanks.

Leslie Rich, Columbia Management.

Hi, Victoria. I wondered if I could ask you to go back to your prepared remarks about New York. The line was sort of cutting in and out when you were talking about the coal plants up there. Could you talk about the output during the quarter and expected for the year and your expectations for 2010 from those assets?

Yes, I don't know that I addressed the output specifically. I think either -- probably Ned would be better positioned to do that or Rich. But what I was referring to was the fact that the availability has come back on line given where pricing is. We've actually been able to put some hedging in place up to about 50% of 2010. But I'll let you guys talk to the current expectations in terms of the plants themselves.

This is Ned Hall who heads up North America.

Yes, I think what Victoria specifically said was that output had gone up relative to earlier periods of time. And what we've seen with gas prices coming back up is higher capacity factors. We were seeing significant periods of time where the units were being dispatched to minimum book, being dispatched off, obviously varying across the fleet. And with gas prices coming back up, we've been able to dispatch more as base load plants again.

And she also referenced our hedge position in 2010 is at 50% and that is a combination of electricity prices and selling gas forward which is a similar hedging strategy used by a lot of people in the business really targeting the fact that our view of electricity prices in the forward market suggest that there's opportunity for upside in the heat rate that's implied. And we'll start to swap those gas sales out into electricity sales as that heat rate comes back in line with expectations. But we feel like we're about 50% hedged into next year now.

Are you 50% hedged on your coal as well?

Yes.

Operator, can we take one more question, please?

James Heckler, Levin Capital Strategies.

Hi, it's actually Neil Stein. How is everyone.? I have a couple of questions. First, I'm assuming this transaction doesn't require any shareholder approval. But how much equity might you be able to issue to CIC in the future and do that without shareholder approval? Is there a limit or could you keep doing these transactions if you see the need?

I'm not sure what the document says. The intent is not to go out and issue -- what we -- the way it's set up though is if we issue any new equity, they would have the pro rata share to keep their stake at 15%, so that's kind of what they're looking at. There would probably be some limits that would be set as part of just an overall governance standpoint and as part of our approach to the sifius process because I think we'll want to keep them below a certain level. But the intent really is for them to remain at about a 15% level. And potentially to the extent there are larger transactions, what we would likely do is go to them with the opportunities for the large transactions and see if they would want to become, on a case by case basis, a joint venture partner, particularly for big investments where we think that makes sense. But in terms of them picking up more of the company, really no intent for that to happen right now. But it would not require any shareholder approval.

I just wanted to -- forgive me, but I do want to explore this concept a little bit of buying stock back last year at $14.00 and then selling it today at $12.60. And let's get beyond the optics and just get to the analytical thought process. Can you help me understand just the value assessment process that you went through in making this determination to sell the stock at a discount to where you bought it back? Because it seems like your earnings aren't really that much different than where they were at year ago. But you seem to be saying that you thought the stock was cheap then, but you don't think it's as cheap today. I want to understand that better.

Part of it is it's the access to capital. A lot of the value that we have I think is in the development pipeline. But then the question is, how do you unlock that value? Without capital to go do it, I mean we'll be generating a lot of free cash flow but that free cash flow starts to come in, particularly out in two, three years down the road. But we have projects we could be closing today, that we could be taking forward. It's that dynamic that if you don't have the capital to go execute on the development projects, you can't create that net present value which is what's going to be accretive to shareholder value.

But a year ago what you had said was that you thought the stock price was a much more attractive investment than any development project you had in front of you. Today you seem to be saying that these development projects are a lot better than your stock price. But I'm just not sure what has really changed. Your earnings power of the Company hasn't changed that much and I can't imagine that these development projects have that much higher return than they might have a year ago.

Well I think back then as we looked at the value of the company, it included some of the development projects that would be executed. And it really comes down to, did we have the confidence that we could go out and raise equity in two months to fund one investment, then maybe another three to four months, and what would the price be at that point in time? So I think the idea of just in time equity issuances looked like a risky approach. Our view was, let's get some capital. We've got a development pipeline, we know we can execute on those, we're creating net present value, and that's good for shareholders. So that's the way we approached it. It's going to allow us to go really to I think take that growth pipeline and turn it into net present value that shareholders can then look at and day, this is real value, it's now in construction, we can look at the NPV that's been locked in, and we should start getting value for that because we're not getting it today.

I understand the mechanics of raising equity is a lot easier with this type of transaction, but there was that statement that was made a year ago that your equity value, or investing your equity was much more attractive than these other potential projects. And you seem to be just kind of taking the opposite stand today. But I guess that's something we could explore later.

Yes, but if you look back to -- I mean the time we were buying back the stock was the pre Lehman situation. We were buying back stock when the world fell apart. I think that's when we looked at and said, okay, I mean the whole world changed at that point in time with the financial crisis. So that's really what's different I think between when we looked at it then and we looked at it now. The same reason we stopped buying back stock. We said the world is changed and it did.

But ultimately if the development projects don't offer that much different returns than they did a year ago and your earnings power at the Company isn't that much different, the relative attractiveness of the two shouldn't be different either. But I don't want to belabor it on the call. We could explore it later on. I appreciate the opportunity to ask these questions and congratulations.

Thank you. And let me just comment before Ahmed closes here. I hear all your concerns and what you've raised are the debates we've had internally here within the Company. And I think you're right, as many of you said, this sets a high bar for us. We've now got to go out and execute and demonstrate that we can turn this capital into value for the shareholders. But that's what we're committed to do and we think it is the right move for the Company. So I appreciate your open and frank comments and just want to tell you that we as a management team are committed to go do that. So let me turn it over to Ahmed who can close the call.

Thanks, Paul. I want to say thank you very much everyone for participating today. If you have any follow up questions, please feel free to call either Michael Cranna or myself And for any media inquiries please call Meghan Dotter. Thank you very much and have a nice day.

That does conclude today's conference. Thank you all for participating. You may disconnect at this time.