Why NRG Energy Stock Got Socked on Thursday

Key Points

• The company aims to raise almost $5 billion through the issuance of several types of debt.

• It will use a portion of the proceeds to pay for a recent acquisition.

• 10 stocks we like better than NRG Energy ›

The shares of NRG Energy (NYSE: NRG) were notable for their lack of juice on Thursday. The stock's price fell by 1.6%, as investors digested news of a fresh capital-raising effort that will add billions of dollars in debt to its balance sheet. The stock's decline was more precipitous than that of the S&P 500 index on the day, as the bellwether equity indicator slumped by 0.5%. The stock was up 3% on Friday around 2:20 p.m. ET.

Energetic capital raising

NRG said it was aiming to secure gross proceeds of $4.9 billion through the issuance of two types of debt.

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The first is senior secured first-lien notes, which in turn are split into two flotations. The first is $625 million worth of notes that mature in 2030, and pay an interest rate of just over 4.7%. The second comprises similar securities at the same aggregate principal amount, but these come due in 2035 and pay out at more than 5.4%.

The second type is senior unsecured notes, which again fall into one of two buckets. The first is a $1.25 billion aggregate principal amount issue maturing in 2034, with a rate of nearly 5.8%. Its accompaniment is a $2.4 billion flotation of 6% notes that come due in 2036.

Time to pay for what it's buying

NRG said it aims to use the net proceeds of these issues to help pay for a recent acquisition. Specifically, this is the cash portion of a portfolio of natural-gas generation assets it agreed to purchase from privately held LS Power Equity Advisors. That deal was tagged at $12 billion in enterprise value.

The company said it will also devote some of the money raised to repay the $500 million principal amount of its 2% senior secured first-lien notes that mature this December.

The LS Power deal is a big swallow, hence the big debt offering. However, it gives NRG a clutch of complementary assets and, assuming it can integrate the new units effectively, a good shot at sustainable growth.

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Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.