8-KFinancial Events

AMEREN CORP 8-K Report, Material Impairment (Dec 20, 2012)

Filed December 20, 2012For Securities:AEE

Summary

Ameren Corporation (AEE) announced in this Form 8-K filing dated December 20, 2012, a significant strategic shift involving its Merchant Generation business segment and its subsidiary, Ameren Energy Generating Company (Genco). Due to declining earnings and cash flows, primarily driven by lower power prices and increasing environmental regulation costs, Ameren has decided to exit its Merchant Generation business segment. This decision is a departure from its previous strategy and reflects a renewed focus on its regulated operations. The exit from the Merchant Generation business will result in substantial non-cash impairment charges. Ameren anticipates recording a charge between $1.5 billion and $2 billion (before taxes), while Genco expects a charge between $50 million and $300 million (before taxes). These charges are to reduce the carrying values of certain energy centers to their estimated fair values. Despite the significant impairment, Ameren stated that these charges are not expected to violate debt covenants, impact credit ratings, or necessitate additional debt or equity financings, nor will they result in material future cash expenditures.

Key Highlights

  • 1Ameren Corporation is exiting its Merchant Generation business segment due to declining profitability and strategic refocusing on regulated operations.
  • 2Significant non-cash impairment charges are expected, estimated between $1.5 billion and $2 billion for Ameren and $50 million to $300 million for Genco, before taxes.
  • 3The impairment charges are a result of the carrying value of certain energy center assets exceeding their estimated recoverable cash flows.
  • 4This strategic decision is driven by weaker power prices, increasing environmental compliance costs, and the need to fund Genco's debt maturities starting in 2018.
  • 5Ameren expects a reduction in 2013 depreciation expense following the impairment charges.
  • 6The company anticipates no material future cash expenditures related to these impairment charges.
  • 7Ameren does not expect these charges to violate debt covenants or require additional debt or equity financing.

Frequently Asked Questions

Ameren is exiting its Merchant Generation business due to declining earnings and cash flows, primarily caused by lower wholesale power prices and significant investment requirements for environmental regulations. The business is no longer considered a core component of Ameren's future strategy, which is now more focused on its regulated operations.

Ameren expects to record substantial non-cash impairment charges in the fourth quarter of 2012. The estimated charge for Ameren is between $1.5 billion and $2 billion (before taxes), and for its subsidiary Genco, it's between $50 million and $300 million (before taxes). This will reduce the carrying value of certain energy center assets to their estimated fair values.

Ameren stated that these impairment charges are not expected to result in a violation of any debt covenants or counterparty agreements. Additionally, the company does not anticipate needing to raise additional debt or equity financing as a result of these charges, nor do they expect material future cash expenditures related to the impairments.

As a result of these impairment charges, Ameren and Genco expect a reduction in their 2013 depreciation expense. Ameren anticipates a reduction of $60 million to $80 million (before taxes), and Genco expects a reduction of $3 million to $15 million (before taxes).