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Dynegy (DYNIQ.PK)

Q3 2012 Earnings Call

November 07, 2012 9:00 am ET


Laura Hrehor

Robert C. Flexon - Chief Executive Officer, President and Director

Kevin Howell - Chief Operating officer and Executive Vice President

Clint Freeland - Chief Financial Officer and Executive Vice President

Clint Freeland - Chief Financial Officer and Executive Vice President


Brandon Blossman - Tudor, Pickering, Holt & Co. Securities, Inc., Research Division

Jonathan Cohen - ISI Group Inc., Research Division

Ken Miller

Julien Dumoulin-Smith - UBS Investment Bank, Research Division

Brian Chin - Citigroup Inc, Research Division

William Frohnhoefer - BTIG, LLC, Research Division



Hello, and welcome to the Dynegy Inc. Third Quarter 2012 Results Teleconference. At the request of Dynegy, this conference is being recorded for instant replay services. [Operator Instructions] Now I'd like to turn the conference over to Ms. Laura Hrehor, Senior Director, Investor Relations. Ma'am, you may begin.

Laura Hrehor

Good morning, everyone, and welcome to Dynegy's investor conference call and webcast covering the company's third quarter 2012 results.

As is our customary practice, before we begin this morning, I would like to remind you that our call will include statements reflecting assumptions, expectations, projections, intentions or beliefs about future events and views of market dynamics. These and other statements not relating strictly to historical or current facts are intended as forward-looking statements.

Actual results, though, may vary materially from those expressed or implied in any forward-looking statement. For a description of the factors that may cause such a variance, I would direct you to the forward-looking statements legend contained in today's news release and in our SEC filings, which are available free of charge through our website at

With that, I will now turn it over to our President and CEO, Bob Flexon.

Robert C. Flexon

Good morning, and thank you for joining us today for Dynegy's earnings call. Here with me this morning are several members of Dynegy's management team including Kevin Howell, our Chief Operating Officer; Clint Freeland, our Chief Financial Officer; and our General Counsel, Catherine Callaway.

For this morning's call, our agenda is highlighted on Slide 3, and since this is our first post emergence and restructuring earnings call, I won't be following our traditional agenda this call, as I would like first to review the company's longer-term positioning within the IPP sector, why invest in restructured Dynegy and the value drivers in the near to medium term. I'll follow that with our traditional third quarter operational and financial performance highlights for the Coal and Gas segments. Kevin will then follow with a review of our operating performance for the quarter and provide updates on our commercial hedge positions, 2013 commodity price trends and additional commentary on modeling Dynegy's portfolio. Clinton will provide the third quarter 2012 financial results highlighting the key factors impacting the performance for the Coal/Gas and DNE segments. Clinton will also cover the third quarter's 2012 cash flows, liquidity and today's announcement concerning the early repayment of $325 million of GasCo's and CoalCo's term loan debt.

I'll close out our prepared remarks with final thoughts on investment valuation considerations for the emerged and restructured Dynegy and why investing in Dynegy today offers an excellent risk/reward profile. With the remaining time, we'll open up the discussion for Q&A with the management team.

Starting off on Slide 4, post-emergence, Dynegy's well-positioned for success as restructuring went far beyond the balance sheet. While the bankruptcy process has resulted in Dynegy having the least leverage and best credit profile in the IPP sector, as we enter 2013 we not only benefit from the strengthened balance sheet, but also from a far more streamlined company.

Fixed cash costs in 2013 are expected to be approximately $105 million below 2010 levels. Capital expenditures in 2013 are expected to be $54 million and $155 million below 2012 and 2011 levels, respectively, with this month's completion of Consent Decree environmental spending for our coal fleet. The debt repayment announced today will lower annualized cash interest cost by $30 million with further savings possible through potential refinancing in 2013 and legacy option positions that will impact 2012 full year earnings and cash flow by approximately $80 million, all settle out in 2012.

In addition to these significant improvements Dynegy's diverse portfolio provides downside protection as the Gas and Coal portfolios provide a natural hedge in changing natural gas environment.

As investors begin to familiarize themselves with Dynegy in the asset portfolio, highlighted on Slide 5 are investment considerations, most of which will be covered on this morning's call. The most compelling investment point is our current valuation. If we assume Dynegy's current enterprise market value of approximately $2.5 billion is entirely attributable to GasCo and no value is assigned to CoalCo, it implies a value of $368 per kW for GasCo. Most, I think, would agree that considering the quality of our GasCo portfolio, the markets in which these assets operate, as well as the recent values combined cycle assets have transacted in the marketplace, $368 per kW for GasCo appears to be a conservative valuation. And remember, that assumes no value is assigned to our nearly 3,000 megawatts of our environmentally-compliant coal generation assets that stands to be a significant beneficiary of tightening reserve margins and increasing power prices.

Furthermore, our de-levered balance sheet provides us with capital allocation options for pursuing alternative risk-adjusted investments in order to maximize the value of the company.

Slide 6 further illustrates the strength of Dynegy's generation portfolio. Dynegy's coal fleet, just this month, completed its environmental retrofit needed to comply with the Illinois Consent Decree, which also enables the fleet to meet the requirements under the Federal EPA Mercury and Air Toxics Standards or MATS.

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