uploads/2015/02/Debt1.jpg

Exelon is one of the leanest power utilities in the US

By

Updated

Total debt

Exelon Corporation (EXC) had a total debt of $22.3 billion on its books as of December 31, 2014. Most of Exelon’s debt is long term in nature. FirstEnergy (FE) has long-term debt borrowings of $19.4 billion. It has short-term borrowings of $2.9 billion.

Article continues below advertisement

Debt comparison

For 4Q14, Exelon’s debt-to-equity ratio was 0.92x. The debt-to-equity ratios for FirstEnergy and Southern Company (SO) were 1.75x and 1.17x, respectively. Exelon’s operations are fairly underleveraged—compared to its peers.

Calpine Corporation (CPN) is a pure unregulated power company. It has the highest debt-to-equity ratio of 3.29x. Companies use debt to leverage operations. A higher leverage magnifies a firm’s profit or losses.

The power utilities business is a capital intensive business. A lot of capital is needed to build power plants. Capital is also need to lay large transmission and distribution networks. The networks spread over thousands of miles. That’s why the utility sector’s debt is comparatively higher than other industries’ debt.

Exelon has one of the leanest debt metrics in the power utility industry. Its debt-to-asset and debt-to-EBITDA (earnings before interest, tax, depreciation, and amortization) ratios are at the lower end of the industry range. Exelon’s debt-to-asset ratio is 0.26x. Its debt-to-EBITDA ratio is 0.70x.

Debt ratios help explain the leverage and riskiness of business. These ratios are some of the important parameters considered by the Utilities Select Sector SPDR Fund (XLU). They give appropriate weighting to utility stocks in its portfolio. Exelon has a weighting of 5.21% in XLU.

Advertisement

More From Market Realist