UBS Remains Sidelined on Dynegy (DYN) as Debt Paydown Remains Focus
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UBS reiterated a Neutral rating on Dynegy (NYSE: DYN), and cut the price target to $13.50 (from $22.00), as the company's debt paydown remains a major focus. Management aims to reduce leverage by ~2x Net Debt/EBITDA off its 2016 estimation of pro-forma Engie leverage of 6.5x, down to its LT target of 4.5x. UBS sees the IPH restructuring, which could yet result in some equity dilution as well as clear potential for refinancing of secured debt package as creating two clear near-term risks.
Analyst Julien Dumoulin-Smith commented, "Following the recent pressure on shares we're still sitting out the story as we see pressure remaining through the near term as mgmt. remains substantially focused on debt reduction. Mgmt. aims to reduce leverage by ~2x Net Debt/EBITDA off its 2016E estimation of pro-forma Engie leverage of 6.5x, down to its LT target of 4.5x. As such, we expect asset sale proceeds will be largely focused to this end (NY and West are already formally contemplated). While shares are returning to the historically lower end of trading multiples, we think appetite through the ongoing de-leveraging cycle will be the most challenged piece. In tandem with its broader de-leveraging targets, refinancing its least ~$2 Bn secured issuance as well as 2019 maturities of $2.1 Bn could add to near-term capital overhangs on the equity (as well as a likely higher cost of debt on unsecured, longer-tenor debt). Cumulative cash flow appears committed to debt reduction through much of decade."
Shares of Dynegy closed at $12.12 yesterday.
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