FirstEnergy Receives Remaining Proceeds in Strategic $3.5 Billion FirstEnergy Transmission, LLC 30% Interest Sale

Rhea-AI Summary

FirstEnergy Corp. (NYSE: FE) has received the final $1.2 billion from the $3.5 billion sale of a 30% stake in FirstEnergy Transmission, to Brookfield Super-Core Infrastructure Partners. This completes the transaction, with the initial $2.3 billion received in March. The proceeds will be used to strengthen FirstEnergy's balance sheet and support its $26 billion Energize365 grid investment program.

Since late 2021, FirstEnergy has completed about $7 billion in strategic equity financings at an equivalent share price of $87, or 36x trailing P/E. Following the transaction, FirstEnergy's credit rating was upgraded to investment grade by all three major agencies. CEO Brian X. Tierney emphasized the company's strong position to become a premier electric company, benefiting stakeholders through its regulated business investments.

Positive

• Received final $1.2 billion from $3.5 billion sale of 30% stake in FirstEnergy Transmission,
• Proceeds to strengthen balance sheet and support $26 billion Energize365 grid investment program
• Completed $7 billion in strategic equity financings at $87 per share (36x P/E)
• Corporate credit rating upgraded to investment grade by all three major agencies
• Strong balance sheet to support investments in regulated businesses

Negative

• None.

Insights

Financial Analyst

FirstEnergy's recent receipt of the final $1.2 billion from the $3.5 billion sale of a 30% stake in its subsidiary, FirstEnergy Transmission (FET), marks a significant infusion of capital into the company. This capital is being deployed to further strengthen the balance sheet, which is a positive indicator for investors. The company's strategic move to improve its financial health is reflected in the recent upgrade of its corporate credit rating by Moody's and S&P, which now lists it as investment grade across all three major rating agencies. This upgrade can lower borrowing costs and improve access to capital markets, which is beneficial for both short-term liquidity and long-term growth.

The allocation of proceeds to support the $26 billion Energize365 grid investment program shows a clear commitment to infrastructure development and modernization. This program is likely to yield significant returns through improved service reliability and customer satisfaction, which could translate into higher future revenues. Additionally, the focus on a 'credit-accretive manner' implies that the company is mindful of maintaining a healthy debt-to-equity ratio, which is a important metric for assessing financial stability.

Retail investors should note that the company's strategy aligns with industry norms of reinvesting capital into core operations and infrastructure. The price-to-earnings (P/E) valuation of 36x, based on the recent equity financings, indicates a premium valuation. Still, given the positive credit ratings and strategic investments, this premium may be justified by future growth prospects.

Market Research Analyst

The strategic sale of a 30% stake in FET to Brookfield Super-Core Infrastructure Partners is a notable move for FirstEnergy. By collaborating with Brookfield, a key player in infrastructure investments, FirstEnergy not only secures significant capital but also aligns itself with a partner that has extensive expertise in managing and optimizing infrastructure assets. This partnership could bring operational efficiencies and enhance the overall value of the FET subsidiary.

Moreover, the Energize365 grid investment program is geared towards addressing the growing demand for electricity and the transition to a more electrified economy. The timing of this investment aligns well with industry trends, as there is an increasing emphasis on grid modernization and sustainability. As regulatory frameworks continue to support green energy initiatives, FirstEnergy's proactive approach positions it advantageously in the market.

For retail investors, the partnership with Brookfield and the focus on grid investments are positive indicators of the company's forward-looking strategy. These initiatives not only have the potential to drive long-term growth but also to enhance service reliability and customer satisfaction, which are critical factors in the highly regulated utility sector.

Credit Analyst

The extinguishment of the $1.2 billion in interest-bearing notes with the final payment from Brookfield marks a pivotal moment in FirstEnergy's balance sheet transformation. This move directly impacts the company's debt profile, reducing leverage and thereby enhancing creditworthiness. The improved corporate credit rating to investment grade is a testament to the effectiveness of these strategic financial decisions.

From a credit perspective, the reduction in debt levels and enhancement in liquidity are critical factors that reduce financial risk. This improvement in credit ratings by all three major agencies—Moody's, S&P and an unnamed third—can lower the company’s cost of capital. For retail investors, this translates into a more stable investment with potentially lower volatility in the company's stock price.

However, it is essential to remain cautious about the execution risks associated with the $26 billion Energize365 program. While the program's objectives are aligned with industry trends, any delays or cost overruns could impact financial stability. Nonetheless, the current strategic moves and credit enhancements present a strong, positive outlook for FirstEnergy's financial health.

Deploys final $1.2 billion in proceeds to further strengthen balance sheet, supporting sustainable, long-term growth through industry-leading Energize365 grid investment program

AKRON, Ohio, July 17, 2024 /PRNewswire/ -- FirstEnergy Corp. (NYSE: FE) announced today that it received the remaining $1.2 billion in proceeds from the $3.5 billion sale of a 30% ownership interest in its FirstEnergy Transmission, LLC (FET) subsidiary to Brookfield Super-Core Infrastructure Partners (Brookfield). FirstEnergy received the initial proceeds of $2.3 billion from Brookfield when the transaction closed in March. The remaining $1.2 billion in interest-bearing notes were extinguished with Brookfield's final payment on July 17.

FirstEnergy is deploying these proceeds in a credit-accretive manner, consistent with the company's plan to further transform its balance sheet and support its five-year, $26 billion Energize365 grid investment program.

Since late 2021, FirstEnergy has completed approximately $7 billion in strategic equity financings at an equivalent share price of $87 per share, or 36x trailing price-to-earnings valuation. Following the closing of this transaction in March, FirstEnergy's corporate credit rating was upgraded by Moody's and S&P, restoring it to investment grade at all three ratings agencies. The credit ratings at the company's subsidiaries were also upgraded. 

"With the successful execution of these strategic transactions, FirstEnergy now has a strong balance sheet to support important investments in our regulated businesses that enhance service reliability, the customer experience and the transition to a more electrified economy," said Brian X. Tierney, FirstEnergy President and Chief Executive Officer. "FirstEnergy has a straightforward, transparent operating model and a culture focused on continuous improvement and driving results, making us well-positioned to become a premier electric company benefiting our customers, investors, communities and employees."

FirstEnergy is dedicated to integrity, safety, reliability and operational excellence. Its electric distribution companies form one of the nation's largest investor-owned electric systems, serving more than 6 million customers in Ohio, Pennsylvania, New Jersey, West Virginia, Maryland and New York. The company's transmission subsidiaries operate approximately 24,000 miles of transmission lines that connect the Midwest and Mid-Atlantic regions. Follow FirstEnergy online at www.firstenergycorp.com and on X, formerly known as Twitter, @FirstEnergyCorp.

Forward-Looking Statements: This news release includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 based on information currently available to management. Such statements are subject to certain risks and uncertainties and readers are cautioned not to place undue reliance on these forward-looking statements. These statements include declarations regarding management's intents, beliefs and current expectations. These statements typically contain, but are not limited to, the terms "anticipate," "potential," "expect," "forecast," "target," "will," "intend," "believe," "project," "estimate," "plan" and similar words. Forward-looking statements involve estimates, assumptions, known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements, which may include the following: the potential liabilities, increased costs and unanticipated developments resulting from government investigations and agreements, including those associated with compliance with or failure to comply with the Deferred Prosecution Agreement entered into July 21, 2021 with the U.S. Attorney's Office for the Southern District of Ohio; the risks and uncertainties associated with government investigations and audits regarding Ohio House Bill 6, as passed by Ohio's 133rd General Assembly ("HB 6") and related matters, including potential adverse impacts on federal or state regulatory matters, including, but not limited to, matters relating to rates; the risks and uncertainties associated with litigation, arbitration, mediation, and similar proceedings, particularly regarding HB 6 related matters, including risks associated with obtaining dismissal of the derivative shareholder lawsuits; changes in national and regional economic conditions, including recession, volatile interest rates, inflationary pressure, supply chain disruptions, higher fuel costs, and workforce impacts, affecting us and/or our customers and those vendors with which we do business; variations in weather, such as mild seasonal weather variations and severe weather conditions (including events caused, or exacerbated by climate changes, such as wildfires, hurricanes, flooding, droughts, high wind events and extreme heat events) and other natural disasters affecting future operating results and associated regulatory actions or outcomes in response to such conditions; legislative and regulatory developments, including, but not limited to, matters related to rates, compliance and enforcement activity, cyber security, and climate change; the risks associated with physical attacks, such as acts of war, terrorism, sabotage or other acts of violence, and cyber-attacks and other disruptions to our, or our vendors', information technology system, which may compromise our operations, and data security breaches of sensitive data, intellectual property and proprietary or personally identifiable information; the ability to meet our goals relating to employee, environmental, social and corporate governance opportunities, improvements, and efficiencies, including our greenhouse gas ("GHG") reduction goals; the ability to accomplish or realize anticipated benefits through establishing a culture of continuous improvement and our other strategic and financial goals, including, but not limited to, overcoming current uncertainties and challenges associated with the ongoing government investigations, executing Energize365, our transmission and distribution investment plan, executing on our rate filing strategy, controlling costs, improving credit metrics, maintaining investment grade ratings, and growing earnings, changing market conditions affecting the measurement of certain liabilities and the value of assets held in our pension trusts may negatively impact our forecasted growth rate, results of operations, and may also cause us to make contributions to our pension sooner or in amounts that are larger than currently anticipated; mitigating exposure for remedial activities associated with retired and formerly owned electric generation assets; changes to environmental laws and regulations, including but not limited to those related to climate change; changes in customers' demand for power, including but not limited to, economic conditions, the impact of climate change, emerging technology, particularly with respect to electrification, energy storage and distributed sources of generation;  the ability to access the public securities and other capital and credit markets in accordance with our financial plans, the cost of such capital and overall condition of the capital and credit markets affecting us, including the increasing number of financial institutions evaluating the impact of climate change on their investment decisions; future actions taken by credit rating agencies that could negatively affect either our access to or terms of financing or our financial condition and liquidity; changes in assumptions regarding factors such as economic conditions within our territories, the reliability of our transmission and distribution system, or the availability of capital or other resources supporting identified transmission and distribution investment opportunities; the potential of non-compliance with debt covenants in our credit facilities; the ability to comply with applicable reliability standards and energy efficiency and peak demand reduction mandates; human capital management challenges, including among other things, attracting and retaining appropriately trained and qualified employees and labor disruptions by our unionized workforce; changes to significant accounting policies; any changes in tax laws or regulations, including, but not limited to, the Inflation Reduction Act of 2022, or adverse tax audit results or rulings; and the risks and other factors discussed from time to time in our Securities and Exchange Commission ("SEC") filings. Dividends declared from time to time on FirstEnergy Corp.'s common stock during any period may in the aggregate vary from prior periods due to circumstances considered by FirstEnergy Corp.'s Board of Directors at the time of the actual declarations. A security rating is not a recommendation to buy or hold securities and is subject to revision or withdrawal at any time by the assigning rating agency. Each rating should be evaluated independently of any other rating.  These forward-looking statements are also qualified by, and should be read together with, the risk factors included in FirstEnergy Corp.'s (a) Item 1A. Risk Factors, (b) Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations, and (c) other factors discussed herein and in FirstEnergy's other filings with the SEC. The foregoing review of factors also should not be construed as exhaustive. New factors emerge from time to time, and it is not possible for management to predict all such factors, nor assess the impact of any such factor on FirstEnergy Corp.'s business or the extent to which any factor, or combination of factors, may cause results to differ materially from those contained in any forward-looking statements. FirstEnergy Corp. expressly disclaims any obligation to update or revise, except as required by law, any forward-looking statements contained herein or in the information incorporated by reference as a result of new information, future events or otherwise.

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SOURCE FirstEnergy Corp.

FAQ

What was the total value of FirstEnergy's (FE) sale of its transmission subsidiary stake?

FirstEnergy Corp. (NYSE: FE) sold a 30% stake in FirstEnergy Transmission, for a total of $3.5 billion to Brookfield Super-Core Infrastructure Partners.

How much did FirstEnergy (FE) receive in the final payment for the transmission stake sale?

FirstEnergy (FE) received the final $1.2 billion payment on July 17, 2024, completing the $3.5 billion transaction.

What is FirstEnergy's (FE) Energize365 program?

Energize365 is FirstEnergy's five-year, $26 billion grid investment program aimed at enhancing service reliability, customer experience, and supporting the transition to a more electrified economy.

How has FirstEnergy's (FE) credit rating changed after the transmission stake sale?

Following the transaction, FirstEnergy's corporate credit rating was upgraded to investment grade by all three major ratings agencies, including Moody's and S&P.