Why Constellation Energy Stock Slumped Today
Key Points
It's floating a debt issue that approaches $3 billion in size.
This will take the form of a four-tranche series of senior note issues.
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A key subsidiary of Constellation Energy Group (NASDAQ: CEG) is seeking new financing, and investors are not pleased about it. After that subsidiary, Constellation Energy Generation, announced on Monday that it was issuing debt securities, market players sold out of Constellation stock. This left it with a more than 3% loss on the day.
A $2.75 billion concern
In a regulatory filing, Constellation stated that it is floating $2.75 billion worth of senior notes, divided into four tranches.
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The first is a $900 million issue that matures in 2028 and carries an interest rate of 3.9%. The second-largest is an $800 million flotation of notes that come due in 2066 and bear a rate of just under 5.88%. No. 3 totals $750 million, matures in 2031, and pays out at 4.4%. Finally, the remaining $300 million is a floating-rate issue with a maturity date of 2028.
The interest payments of all the notes will occur semi-annually, Constellation added.
In the prospectus for the four issues, the utility stated that it will use the proceeds raised to retire the outstanding debt of Calpine, the peer electric company it is on the verge of acquiring.
Floating debt to retire debt
Typically, investors tend to favor capital-raising measures that channel funds into business-building activities, such as asset purchases or new research and development efforts. This one will be used to adjust the balance sheet of the Calpine-fattened Constellation. According to another regulatory filing from Constellation, Calpine's net debt stood at just over $11.8 billion at the end of 2024.
It isn't unusual for large energy companies to have significant debt piles, as the capital spending required to reach scale can be considerable. At least Constellation is making an effort to improve its post-Calpine balance sheet, and given that, I think folks bullish on the company shouldn't be discouraged by the senior notes issue.
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Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Constellation Energy. The Motley Fool has a disclosure policy.
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