WEC Energy Group announces pricing of $750 million of 4.375% Convertible Senior Notes due 2027 and $750 million of 4.375% Convertible Senior Notes due 2029

Rhea-AI Summary

WEC Energy Group announced the pricing of $750 million in 4.375% convertible senior notes due 2027 and another $750 million in 4.375% convertible senior notes due 2029. The offering is aimed at qualified institutional buyers under Rule 144A.

The notes are expected to close on May 28, 2024, with interest paid semiannually. The 2027 notes mature on June 1, 2027, and the 2029 notes mature on June 1, 2029. Conversion rates are set at 10.1243 shares per $1,000, translating to a conversion price of approximately $98.77 per share, a 20% premium over the last sale price on May 22, 2024. WEC intends to use the proceeds for corporate purposes, including debt repayment.

Positive

• Successful pricing of $1.5 billion in convertible senior notes indicates strong investor interest.
• Interest rate of 4.375% per annum is competitive.
• Conversion rate includes a 20% premium, signaling investor confidence.
• Funds to be used for general corporate purposes and debt repayment, which may strengthen financial health.

Negative

• Additional $1.5 billion debt could increase financial leverage and interest obligations.
• Convertible nature of notes could lead to dilution of existing shareholders upon conversion.
• Maturity and redemption terms may pose risks if market conditions become unfavorable.

Insights

Financial Analyst

WEC Energy Group's issuance of $1.5 billion in convertible senior notes is a notable financial maneuver. Convertible notes are a hybrid financial instrument that combines debt and equity features, offering a fixed return through interest payments (in this case, 4.375% annually) while providing an option to convert the debt into equity.

For retail investors, the conversion premium of 20% is significant. This means the notes are convertible at a price 20% higher than the current market price of WEC Energy’s stock. The initial conversion price is approximately $98.77 per share, higher than the stock's last reported sale price. This premium indicates confidence in the company's future stock performance, as investors are essentially betting that the stock price will appreciate beyond the conversion price.

Interest rates set at 4.375% are relatively attractive given the market conditions, offering a fixed income component that can appeal to investors seeking predictable returns and a hedge against equity market volatility.

WEC Energy’s decision to use the proceeds for general corporate purposes, including repayment of short-term debt, suggests a strategy to strengthen its balance sheet. However, it's important to monitor how effectively these funds are utilized, as inefficient use could lead to investor dissatisfaction.

Market Research Analyst

From a market perspective, the issuance of these convertible notes dovetails with WEC Energy's strategy to bolster its financial resources. Convertible notes can be appealing to institutional buyers because they provide downside protection through interest payments while offering upside potential via stock conversion.

The timing is also relevant. Issuing notes now, with maturity dates in 2027 and 2029, allows WEC Energy to lock in a relatively low interest rate environment. This is strategic given that future interest rates could rise, increasing the cost of borrowing.

These notes are senior and unsecured, meaning they will have priority over other debts in the event of liquidation, but they are not backed by specific assets. Understanding the company's existing debt structure and its ability to generate sufficient cash flow to meet these obligations is key for investors.

The market's anticipation of how WEC Energy will leverage this capital, particularly in its growing renewable energy portfolio, could drive positive sentiment. The company's expansion into renewable energy aligns with broader industry trends and investor interest in sustainable energy projects.

MILWAUKEE, May 22, 2024 /PRNewswire/ -- WEC Energy Group, Inc. (NYSE: WEC) today announced the pricing of $750,000,000 in aggregate principal amount of its 4.375% convertible senior notes due 2027 (the "2027 convertible notes") and $750,000,000 in aggregate principal amount of its 4.375% convertible senior notes due 2029 (the "2029 convertible notes" and, together with the 2027 convertible notes, the "convertible notes") in a private offering to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended (the "Securities Act"). In addition, WEC Energy Group granted the initial purchasers of the convertible notes an option to purchase, within a 13-day period beginning on, and including, the date the convertible notes are first issued, up to an additional $112,500,000 in aggregate principal amount of the 2027 convertible notes and up to an additional $112,500,000 in aggregate principal amount of the 2029 convertible notes. The offering is expected to close on May 28, 2024, subject to customary closing conditions.

The convertible notes will be senior, unsecured obligations of WEC Energy Group.  Interest on the convertible notes will be paid semiannually, at a rate of 4.375% per annum (in the case of the 2027 convertible notes) and at a rate of 4.375% per annum (in the case of the 2029 convertible notes).  The convertible notes will mature on June 1, 2027 (in the case of the 2027 convertible notes) and June 1, 2029 (in the case of the 2029 convertible notes), unless earlier converted or repurchased in accordance with their terms or (in the case of the 2029 convertible notes) redeemed by WEC Energy Group. 

Prior to March 1, 2027 (in the case of the 2027 convertible notes) or March 1, 2029 (in the case of the 2029 convertible notes), holders will have the right to convert their convertible notes only upon the occurrence of certain events and during certain periods. From and after March 1, 2027 (in the case of the 2027 convertible notes) or March 1, 2029 (in the case of the 2029 convertible notes), holders will have the right to convert their convertible notes at any time until the close of business on the second scheduled trading day immediately preceding the maturity date of the applicable series of convertible notes. Upon conversion, WEC Energy Group will pay cash up to the aggregate principal amount of the convertible notes of the applicable series to be converted and pay or deliver, as the case may be, cash, shares of WEC Energy Group's common stock, or a combination of cash and shares of common stock, at WEC Energy Group's election, in respect of the remainder, if any, of WEC Energy Group's conversion obligation in excess of the aggregate principal amount of the convertible notes of the applicable series being converted.

The conversion rate for the 2027 convertible notes will initially be 10.1243 shares of WEC Energy Group's common stock per $1,000 principal amount of the 2027 convertible notes (equivalent to an initial conversion price of approximately $98.77 per share of common stock), representing an initial conversion premium of approximately 20.0% above the last reported sale price of WEC Energy Group's common stock on May 22, 2024. The conversion rate for the 2029 convertible notes will initially be 10.1243 shares of WEC Energy Group's common stock per $1,000 principal amount of the 2029 convertible notes (equivalent to an initial conversion price of approximately $98.77 per share of common stock), representing an initial conversion premium of approximately 20.0% above the last reported sale price of WEC Energy Group's common stock on May 22, 2024.  The conversion rate of each series of convertible notes is subject to adjustment in certain circumstances.  In addition, following certain corporate events that occur prior to the maturity date of each series of the convertible notes or, with respect to the 2029 convertible notes, if WEC Energy Group delivers a notice of redemption, WEC Energy Group will, in certain circumstances, increase the conversion rate of the applicable series of convertible notes for any holder who elects to convert its notes of such series in connection with such corporate event or notice of redemption, as the case may be.

If WEC Energy Group undergoes a fundamental change (as defined in the indentures that will govern the convertible notes), subject to certain conditions, holders of the convertible notes may require WEC Energy Group to repurchase for cash all or any portion of their convertible notes at a repurchase price equal to 100% of the principal amount of the convertible notes to be repurchased, plus accrued and unpaid interest to, but excluding, the repurchase date.  

WEC Energy Group may not redeem the 2027 convertible notes prior to their maturity date.  WEC Energy may not redeem the 2029 convertible notes prior to June 1, 2027.  WEC Energy Group may redeem for cash all or part (subject to certain limitations on partial redemptions) of the 2029 convertible notes, at its option, on or after June 1, 2027 and on or prior to the 41^st scheduled trading day immediately preceding the maturity date, if the last reported sale price of WEC Energy Group's common stock has been at least 130% of the conversion price of the 2029 convertible notes then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period (including the last trading day of such period) ending on, and including, the trading day immediately preceding the date on which WEC Energy Group provides notice of redemption. The redemption price for the 2029 convertible notes will equal 100% of the principal amount of the 2029 convertible notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date.

WEC Energy Group intends to use the net proceeds from this offering for general corporate purposes, including the repayment of short-term indebtedness.

This press release shall not constitute an offer to sell or a solicitation of an offer to buy, nor shall there be any sale of these securities in any jurisdiction in which such an offer, solicitation or sale would be unlawful. The offer and sale of the convertible notes and the shares of common stock issuable upon conversion of the convertible notes, if any, have not been, and will not be, registered under the Securities Act or the securities laws of any other jurisdiction, and the convertible notes and such shares of common stock may not be offered or sold without registration or an applicable exemption from registration requirements.

WEC Energy Group (NYSE: WEC), based in Milwaukee, is an energy company serving 4.7 million customers in Wisconsin, Illinois, Michigan and Minnesota.

The company's principal utilities are We Energies, Wisconsin Public Service, Peoples Gas, North Shore Gas, Michigan Gas Utilities, Minnesota Energy Resources and Upper Michigan Energy Resources. Another major subsidiary, We Power, designs, builds and owns electric generating plants. In addition, WEC Infrastructure LLC owns a growing fleet of renewable generation facilities in states ranging from South Dakota to Texas.

Forward-looking statements

Certain statements contained in this press release are "forward-looking statements" under federal securities laws.  These statements are based upon management's current expectations and are subject to risks and uncertainties that could cause actual results to differ materially from those contemplated in the forward-looking statements. Readers are cautioned not to place undue reliance on these statements. Forward-looking statements include, among other things, statements regarding the completion of the offering of convertible notes and the intended use of proceeds. 

Factors that could cause actual results to differ materially from those contemplated in any forward-looking statements include, but are not limited to: market conditions; the satisfaction of closing conditions related to the offering; and risks relating to WEC Energy Group's business, including those described under the heading "Factors Affecting Results, Liquidity and Capital Resources" in Management's Discussion and Analysis of Financial Condition and Results of Operations and under the headings "Cautionary Statement Regarding Forward-Looking Statements" and "Risk Factors" in the company's Annual Report on Form 10-K for the year ended December 31, 2023, and in subsequent reports filed with the Securities and Exchange Commission.  There can be no assurance that the offering of convertible notes will be completed on the anticipated terms, or at all. Except as may be required by law, WEC Energy Group expressly disclaims any obligation to update any forward‐looking information.

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SOURCE WEC Energy Group

FAQ

What is the interest rate on WEC's convertible senior notes due 2027 and 2029?

The interest rate is 4.375% per annum for both the 2027 and 2029 notes.

What are the maturity dates for WEC's new convertible senior notes?

The 2027 notes will mature on June 1, 2027, and the 2029 notes will mature on June 1, 2029.

When will the WEC convertible senior notes offering close?

The offering is expected to close on May 28, 2024, subject to customary closing conditions.

What is the conversion rate for WEC's convertible notes?

The initial conversion rate is 10.1243 shares per $1,000 principal amount, equivalent to a conversion price of approximately $98.77 per share.

What will WEC use the proceeds from the convertible senior notes for?

WEC intends to use the net proceeds for general corporate purposes, including the repayment of short-term indebtedness.

How can holders convert their WEC convertible senior notes?

Prior to March 1, 2027 (for the 2027 notes) or March 1, 2029 (for the 2029 notes), holders can convert their notes upon certain events. After these dates, they can convert at any time until the close of business on the second scheduled trading day before maturity.