Talen Energy Supply narrowed its EBITDA and free cash flow guidance for fiscal year 2019 as it unveiled softer 3Q19 earnings earlier this month, according to two sources familiar with the matter. The move marks the second time Talen has tightened its guidance this year.
The Riverstone-backed power company expects EBITDA in the range of USD 600m-USD 650m for FY19, compared to previous guidance of USD 600m-USD 700m. Free cash flow guidance was revised to USD 20m-USD 80m from previous guidance of USD 10m-USD 110m, the sources said.
The company already tightened EBITDA and free cash flow guidance in August with its 2Q19 earnings report. Initial 2019 EBITDA guidance stood at USD 575m-USD 725m and was tightened to USD 600m-USD 700m. Free cash flow guidance for the year was also changed at that time to USD 10m to USD 110m from USD 0m to 120m, as reported.
Talen’s USD 625m 10.5% senior guaranteed notes due 2026 dipped nearly two points after the 3Q19 earnings were released, trading on 21 November at 84.75 to yield 14.306%, according to MarketAxess. They have retraced slightly since then, trading today (25 November) at 85.12 to yield 14.206%.
On the earnings front, the company booked USD 213m in adjusted EBITDA, down 17% from USD 257m in 3Q18, attributed to an expected weakness in PJM capacity, the sources said.
Sources expect the weakness on the capacity side to persist until the results from the 2020/2021 capacity auction are actualized. In that auction, Talen offloaded 94% of its capacity.
“This quarter was weak, but in line with expectations. We’re really just waiting for management to provide more insight on just how much of a boost the company will get in 2021 from the auction,” one of the sources said.
As of 30 September, the company’s liquidity totaled USD 844m through USD 33m of cash and USD 811m of revolver availability. The company is now levered 6.4x, based on USD 718m of LTM consolidated adjusted EBITDA and USD 4.6bn of total debt.
Talen’s nearest maturity trading in size, its USD 550m 6.5% senior unsecured notes due 2025, softened slightly to 76 to yield 12.662% post earnings, from trades at 76.25 in early November. The notes leaked further today (25 November) to 75.75 to yield 12.76%, according to MarketAxess.
Meanwhile, the issuer’s USD 750m 7.25% senior secured notes due 2027 ticked up slightly to trade at 102 on 15 November for a 6.726% yield, from 101.593 before the earnings report. They traded today at 102 for a 6.723% yield.
Talen did not respond to a request for comment.