Why AES can be called a highly leveraged power company


Dec. 3 2014, Updated 8:00 a.m. ET

Total debt of AES

AES Corporation (AES) had a total debt of $21.07 billion as of September 30, 2014. A major portion of this debt came from long-term borrowing.


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Reducing debt and leverage

In recent years, AES has deleveraged its business significantly by repaying debt. Debt repayment and the lowering of debt levels are important parts of the company’s disciplined capital allocation strategy, which AES announced in September 2011.

Since then, AES has used $1.6 billion to reduce and realign its debt through refinancing. This has helped the company lower its corporate debt by nearly 20% and save $140 million annually from interest expenses.

AES debt metrics

Though AES has been trying to reduce debt from its books over the last three years, the debt ratios still remain high compared to those of its peers. As noted in the chart above, AES Corporation’s debt ratios are among the highest in the US power utility industry.

AES has a debt-to-market cap ratio of 2.07x. This means AES has more than double the debt of its current market cap of $9.6 billion. After 3Q14, debt-to-equity and debt-to-assets ratios stand at 0.54x and 2.76x, respectively.

Barring debt-to-EBITDA (or earnings before interest, tax, depreciation, and amortization), debt ratios for NRG Energy (NRG) are lower than those of AES. At 8.06x, NRG’s debt-to-EBITDA ratio is the highest of all the companies shown in the chart above.

Exelon Corporation (EXC) and Edison International (EIX) have the lowest debt ratios of all the companies that are part of the Utilities Select Sector SPDR (XLU).


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