Clearway Energy Inc (CWEN) 2013 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the NRG Yield Q3 2013 earnings call. My name is Tracy and I will be your operator for today. At this time, all participants are in listen-only mode. We will conduct a question-and-answer session towards the end of this conference.

(Operator Instructions)

As a reminder, this call is being recorded for replay purposes.

I would now like to turn the call over to Mr. Chad Plotkin, Vice President of Investor Relations. Please proceed, sir. Thank you.

Thank you, Tracy, and good morning. I would like to welcome everyone to NRG Yield's third-quarter 2013 earnings call.

This morning's call is being broadcast live over the phone and via webcast, which can be located on our website at www.NRGyield.com. You can access the call, associated presentation material, as well as a replay of the call in the presentation and webcast section of our website. Because this call, including the presentation and Q&A session, will be limited to a half hour, we ask that you limit yourself to only one question and one follow-up.

In addition, as this is the earnings call for NRG Yield, any statements made on this call that may pertain to NRG Energy will be provided from NRG Yield's perspective. Before we begin, I urge everyone to review the Safe Harbor statement provided in today's presentation, which explain the risks and uncertainties associated with future events and the forward-looking statements made in today's press release and presentation material.

We caution you to consider the important risk factors contained in our press release and other filings with the SEC that could cause actual results to differ materially from those in the forward-looking statements in the press release and this conference call. In addition, please note that the date of this conference call is Tuesday, November 12, 2013, and any forward-looking statements that we make today are based on assumptions that we believe to be reasonable as of this date. We undertake no obligation to update these statements as a result of future events, except as required by law.

During this morning's call, we will refer to both GAAP and non-GAAP financial measures of the Company's operating and financial results. For complete information regarding our non-GAAP financial information, the most directly comparable GAAP measures, and a quantitative reconciliation of those figures, please refer to today's press release and this presentation.

With that, I'll turn the call over to David Crane, NRG Yield's Chairman, President, and Chief Executive Officer.

Thank you, Chad. Good morning, everyone, and thank you for joining us for this NRG Yield's first-ever quarterly earnings call.

I'm joined here today by Kirk Andrews, our Chief Financial Officer, and Mauricio Gutierrez, our Chief Operating Officer. And both Kirk and Mauricio will be participating in the presentation and then also available to answer your questions.

I'm sure that many of you listened and maybe even participated in the NRG Energy earnings call, which ended some 45 minutes ago, and so, much of what you may have heard on that call might be discussed again. So we're going to limit ourselves trying to be as briefly as possible to 30 minutes and our remarks should take no more than 10 minutes.

Turning to slide 3, before I turn it over to Mauricio and Kirk to discuss NRG Yield's operational and financial performance for the quarter in some detail, I thought it would be a good opportunity to reinforce the underlying investment proposition of NRG Yield.

Simply put, with the active support of NRG, NRG Yield seeks to be, and in our opinion is, the leading total return investment vehicle providing both current income and dividend growth via predictable and stable cash flow from a platform of over 2.5 gigawatts of conventional and renewable and thermal equipment generation assets, underpinned in all cases by long-term predictable offtake agreements.

Further, along with the diversity and assets that come from a mix of conventional renewable and thermo generation assets, NRG Yield is well positioned for growth as a result of its favored relationship with NRG, and its access to NRG's intrinsic growth projects and NRG's ability to realize upon extrinsic acquisition opportunities.

Lastly, and most importantly, with the declaration of our first-ever dividend, we aim to provide our investors between 10% to 15% of annual dividend per share growth over the next five years, beginning with an increase of 20% by the third quarter of 2014.

With that, I will turn the call over to Mauricio.

Thank you, David. I will also be very brief with my remarks, given that the portfolio is performing well within our expectations and the planned far meetings are contractual obligations.

As always, and starting with safety, in slide 5, the assets have an exceptional quarter, with only one reportable injury and well within top decile performance. In our conventional segment, our gas portfolio was exceptional, with a 97% starting reliability across all three plants, and Marsh Landing posting an impressive 98% availability factor in the first six months of operations.

In our renewable segment, our solar facilities have experienced normal insulation levels, resulting in production levels consistent with contractual obligations and our wind generation was slightly lower due to lower wind speeds, despite high availability factors.

Finally, our thermal business is performing as it has for the last couple of years, very steady and largely driven by weather. Colder weather across our Northern businesses increased steam production by 18% compared to last year. Power generation increased by the conversion from coal to gas of the Dover facility and the full-year operation of the CHP facility of Princeton Hospital.

With that, I will turn it over to Kirk for the financial review.

Thanks, Mauricio.

Turning to the financial summary on slide 7, NRG Yield is reporting third-quarter adjusted EBITDA of $83 million, and $56 million in cash available for distribution. Through the first nine months of 2013, NRG Yield generated $178 million in adjusted EBITDA, placing us on track to our previously announced 2013 guidance of $240 million.

Cash available for distribution, or CAFD, was $83 million through the first nine months of 2013. Due to a reduction in 2013 maintenance capital expenditures, specifically in our thermal segment, we are increasing guidance for 2013 cash available for distribution by $9 million, leading to a revised CAFD guidance of $81 million.

For 2014, we are reaffirming our guidance for both adjusted EBITDA and cash available for distribution. The 27% year-over-year increase in cash available for distribution is largely driven by the release of cash at CVSR, which is now fully online and will begin making distributions in 2014. This organic growth permits significant dividend increases through 2014, establishing a base for our newly adopted dividend policy targeting 10% to 15% growth, which I'll discuss in greater detail shortly. In addition, NRG has now indicated it tends to offer four right of first offer assets to us through 2014, providing additional opportunities to increase CAFD.

Finally, our strong liquidity base of $272 million as of September 30, which well exceeds our minimum needs, provides a meaningful capital surplus which may be used to fund dropdowns or acquisitions, reducing the need for external capital and enhancing accretion in CAFD per share.

Turning to slide 8, we are pleased to announce NRG Yield's dividend policy, which targets 10% to 15% annual dividend growth, which will be achieved through a combination of regular quarterly dividends to be augmented by increases resulted from acquisitions and financing. Having now declared our first-ever quarterly dividend of $0.23 per share to be paid on December 16 for shareholders of record on December 2, NRG Yield will be steadily growing its dividend over the course of 2014, towards an annualized rate of $1.45 per share by the third quarter of 2014.

Importantly, this 20% increase over our current annualized rate of $1.20 per share is driven solely by the organic growth in CAFD from the current portfolio, as CVSR primarily and also Marsh Landing began delivering their full one-rate distribution. And this is not dependent on dropdowns, acquisitions, or any other financing activity.

From this annualized base dividend of $1.45 per share, NRG Yield is committed to regular minimum quarterly dividend increases of 1% per quarter, which would be augmented based on increases in CAFD resulting from dropdowns, acquisitions, or capital structure optimization, which would include, for example, the refinancing of certain amortizing project level debt.

NRG has now indicated its intention to offer to us four of the six ROFO assets through 2014. These include TA High Desert and Kansas South, solar PV projects of 20-megawatts each. NRG's El Segundo energy center, a 550-megawatt natural gas fired facility under a 10-year capacity contract with Southern California Edison, and the remaining interest in CVSR, which is now fully online.

Together, these assets represent over 700-megawatts and are expected to generate approximately $55 million in annual cash available for distribution. Beyond 2014, NRG intends to offer the opportunity to acquire the remaining two ROFO assets, which include NRG's 51% stake in Agua Caliente as well as its 50.1% interest in the Ivanpah solar thermal project, which together would deliver approximately $45 million in incremental CAFD. And when combined with the assets to be offered to us through 2014, this represents approximately $100 million in additional cash available for distribution, which would nearly double the amount of CAFD expected from our existing portfolio in 2014.

This highly visible pipeline of opportunities has the potential significantly increase CAFD, giving us great confidence in our ability to meet our long-term dividend growth objectives and may be further augmented by additional acquisitions and financing activities. We expect to update you on timing of funding these dropdowns as we finalize discussions with NRG.

And with that, I'll turn it back to David for some closing remarks.

Thank you, Kirk.

Before I turn it over to the operator to field your questions, I just want to make one general comment. When we were on the NRG Yield road show in July, we were very bullish on the Company's prospects. And bullish not only in our ability to pay a healthy dividend off the assets already in the portfolio, but on our ability to grow the asset base and the dividend based on both the future dropdown of NRG's ROFO assets and additional growth stemming from extrinsic and intrinsic growth opportunities that would be made available to NRG, and then through NRG to NRG Yield. Clearly, we already have begun to identify those further opportunities and we remain very bullish on our ability to fulfill the promise of NRG Yield in terms of both yield and growth.

So with that, Tracy, we're happy to answer any questions that the listeners may have.

Thank you.

(Operator Instructions)

Your first question comes from the line of Paul Zimbardo from UBS. Please proceed.

Good morning, again, everyone.

Good morning, Paul.

Just one quick question. Can you discuss your thought process around the ability of wind assets to be dropped in, specifically those with PTCs? And are there any tax structures or ability there to improve the economics, sell down those tax elements, et cetera?

Well, first of all, PTCs assets would certainly be eligible for dropdown or acquisition by NRG Yield. Obviously, those PTCs would serve to offset or extend what we kind of call the tax runway, given the entity the ability to continue to self-shield those taxes.

As far as means by which to optimize or otherwise monetize those investments, those are available. However, we have to be mindful of focusing on means which do not require the payment of current cash to a counterparty, for example, which obviously would dilute the CAFD. But otherwise, we are open to, and would be, exploring opportunities to do that, as long as we don't sacrifice CAFD in the process.

Okay, and how long would you say that tax runway is right now, approximately?

Right now, in the existing portfolio, it's about 10 years.

Okay, great. Thanks again.

Thanks, Paul.

Thank you. Your next question comes from the line of Travis Miller from Morningstar. Please proceed.

Good morning, again. I wanted to ask about the valuation that you guys might put on or -- apologize if there's a public contract around that, for the ROFO assets and the potential EME assets? I guess phrased in another way -- how do you think about the equity contribution from NRG Yield for the ROFO and potentially EME assets?

Kirk?

Sure. Well, first of all, Travis, the equity contribution is a function of NRG's percentage interest in NRG Yield. For any dropdown, NRG would potentially take some combination of cash and stock. And it would be the cash component that would drive the financing need, with basically the units that NRG would take -- the B units, in particular -- that NRG would take as currency, not requiring any external financing.

As far as valuation is concerned, I want to be careful to indicate that's subject to the negotiation with the NRG Yield Board and the approval of the NRG independent Directors. But certainly, a principal focus on that would be the impact -- not exclusively, but obviously importantly, the impact on CAFD per share, because this is all about driving accretion and growth in the dividend.

As I noted, in terms of the source of financing, which would certainly have the ability to drive that accretion, the fact that we've got some surplus capital and surplus liquidity currently at NRG Yield would offset what would otherwise be any external equity raises or financing.

Okay, great. Thanks a lot.

Thank you. Sir, you have no questions at the moment.

(Operator Instructions)

Well, operator, I think we promised to keep the call short. And if there are no further questions, we are happy to -- oh, there is one more question?

We do just have a question come through from the line of -- (multiple speakers)

Okay. We'll answer that question. Then we'll just call it a day, operator. Thank you.

Okay. The next question comes from the line of Andrew Hughes from Bank of America Merrill Lynch. Please proceed.

Hello, guys. This is Andrew on for Brian. Just a quick question with a little more clarity around the dropdown for the four 2014 ROFO assets. Just curious if that has any implications for when the EME wind assets might get dropped down -- if that pushes that out at all or pulls it in?

So, the inner play between the four announced and the EME assets, assuming that Edison transaction closes for NRG Energy around the end of the -- sometime in the first quarter, so how is that affected?

I would say, first of all, that schedule of dropdowns is certainly been focused on independent of the EME transaction. I would not expect any material change in the bulk of the assets for drop down, if we were to consider other dropdown opportunities not limited to EME and acquisitions.

So, I think on a stand-alone basis, we feel comfortable with it, and I don't feel that we would expect a material change in that schedule.

Great. Thanks, guys.

Thank you, Andrew. So, Tracy, I think that's good for today. We appreciate everyone's continued interest in NRG Yield, and we look forward to talking to you all on our next quarterly call, if not before. So, thank you very much.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Good day.