AES plans to issue $3.3 billion of new debt to fund DPL acquisition

By Jennifer Lanning Drey

Savannah, Ga., April 20 - AES Corp. expects to issue $3.3 billion of new debt to permanently fund its acquisition of DPL Inc., Victoria Harker, AES' chief financial officer, said Wednesday during a company conference call held to discuss the proposed transaction.

AES announced on Wednesday that it has executed a definitive agreement to acquire DPL in a transaction valued at $4.7 billion on an enterprise value basis. DPL is the parent company of the Dayton Power & Light Co.

AES will pay a total of $3.5 billion in cash for the equity in the company and assume $1.2 billion of net debt.

The company's permanent financing plans include the issuance of $2.05 billion of unsecured notes and/or a term loan at AES Corp. and $1.25 billion of senior unsecured notes at DPL Inc., Harker said.

The company expects to issue the AES debt on an opportunistic basis during the regulatory approval process.

"We think it's a good time to go out and raise capital. Rates are attractive. That's one of the reasons we're going to go out early even though we're going to have some additional costs by holding it," Paul Hanrahan, AES' chief executive officer, said during the question-and-answer portion of the call.

The DPL debt is expected to be issued upon closing of the transaction.

The company expects the transaction to close in late 2011 or early 2012.

Bridge financing

In the meantime, AES has committed bridge financing in place from Bank of America Merrill Lynch. The $3.3 billion bridge facility contemplates a $2.05 billion bridge facility at AES and a $1.25 billion bridge facility at DPL Holdco, Harker said.

The bridge will be available to the company beyond the expected timing of the regulatory approval.

"While we don't expect to ultimately draw on the bridge, but rather to proceed directly with permanent financing, it does provide a necessary backstop," she said.

'Effectively relevering'

Harker also said during the call that AES' may return to prior credit ratings in light of the transaction.

The company paid down $1.2 billion of parent debt prior to the transaction and is now "effectively relevering," she said.

However, when taking into consideration the DPL subsidiary distributions to AES, the company is comfortably within its credit ratio goals, she said.

DPL is expected to maintain its investment-grade ratings.

"While we are adding leverage at the DPL level, we have sized the debt such that DPL should maintain its investment-grade status," Harker said.

Strategic rationale

The acquisition of DPL will present AES the opportunity to compliment its existing utility platform in the Midwest, leverage its scale and use its advantageous tax position in the United States, Hanrahan said.

"We're very pleased to be moving forward with this acquisition of DPL," he said.

Harker later noted that the company believes the acquisition will yield a greater return for its investors than delevering or share repurchases.

Based in Dayton, Ohio, DPL serves more than 500,000 customers in west central Ohio through its subsidiaries DP&L and DPL Energy Resources.

Upon closing of the transaction, DPL will become a wholly owned subsidiary of AES, an Arlington, Va.-based generator and distributor of electricity.

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