Entergy plans $575 million bonds, transmission units $1.2 billion, ITC $700 million for ITC merger

By Aleesia Forni

Columbus, Ohio, Dec. 5 - Entergy Corp. plans to raise $575 million in bonds from capital markets in connection with the merger of its electric transmission business with ITC Holdings Corp., according to a press release on Monday. The transmission subsidiaries will sell a further $1.2 billion of bonds as part of the transactions. An additional $700 million will be raised by ITC.

Entergy will contribute roughly $500 million of the new bond proceeds to Entergy Utility Operating companies and retain the remaining $75 million to pay down parent debt.

The transmission companies, called Entergy Transco Subs, will borrow $1.2 billion from the capital markets to allow Entergy's utility operating companies to pay down debt equivalent to the transmission debt capitalization.

In order to separate its electric transmission business from the remaining utility operating company assets, the operating companies will contribute their transmission assets to the newly formed transmission subsidiaries in exchange for stock and roughly $1.2 billion of cash.

The Entergy utility operating companies then plan to repay $1.7 billion of outstanding debt.

Entergy will form a new holding company which will assume the $575 million of bonds issued by Entergy as the first step. This holding company, referred to as Mid South TransCo LLC, will then be acquired by ITC.

Entergy expects to receive $1.775 billion in connection with the merger and plans to use most of the cash proceeds to retire debt associated with the transmission business at its utility operating companies and the balance for debt reduction at the parent company.

'Maintain flexibility'

"We are pleased to have reached this agreement with ITC, and after careful consideration, we believe this transaction is without a doubt the right decision for our customers and other stakeholders," chief executive officer of Entergy, J. Wayne Leonard, said in the release.

"The transaction enables us to maintain the financial flexibility necessary to address the growing challenges our industry faces, including substantial infrastructure investment. We believe ITC's independent transmission company structure is the best model to drive economic efficiency, achieve an open and robust market, and provide access for low-cost generation and efficient transmission use and expansion in the country."

ITC's recapitalization, debt

Prior to the merger, ITC plans to carry out a $700 million recapitalization, currently expected to take the form of a special dividend to its shareholders.

Additionally, ITC anticipates issuing roughly $700 million of unsecured debt.

"This transaction furthers ITC's position as a preeminent electric transmission owner, operator and developer in the U.S. and also serves to validate the benefits of the independent transmission model," president and chief executive officer of ITC, Joseph L. Welch, said in a press release.

"By combining these businesses, we will significantly enhance the scale of our operations and financial resources as we continue to invest in electric transmission infrastructure for the benefit of customers, resulting in improved reliability, reduced system congestion and greater access to competitive energy markets."

Staying investment grade

The combination is expected to enhance the overall credit quality for ITC, and the transaction has been structured to preserve ITC's existing investment-grade credit ratings.

The company also expects to achieve similar investment grade credit ratings for the merged entities.

ITC's total near-term cash requirements will be supported through internal operating cash flows and new debt issuances.

New equity issuances are not anticipated to fund the company's capital investments in the near-term.

The transaction is expected to close in 2013.

"This is an attractive and natural strategic fit for ITC that provides benefits for stakeholders, including customers, employees, local communities and shareholders," Welch said.

"We have a strong track record of efficiently and effectively integrating systems and anticipate a seamless transition for Entergy customers."

ITC is a Novi, Mich.-based electric transmission company, and Entergy is an integrated energy company headquartered in New Orleans.

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