8-KOther Events

CENTERPOINT ENERGY INC 8-K Report, Corporate Update (Sep 1, 2020)

Filed September 1, 2020For Securities:CNP

Summary

CenterPoint Energy's indirect wholly owned subsidiary, Southern Indiana Gas and Electric Company, successfully completed the remarketing of two series of tax-exempt bonds on September 1, 2020. These bonds, originally issued in 2015, totaling $38.2 million ($23.0 million from the City of Mount Vernon and $15.2 million from Warrick County, Indiana), were remarketed with a significantly reduced fixed interest rate. The new rate of 0.875% per annum, down from the original 2.375%, is fixed through August 31, 2023, providing immediate interest expense savings for the subsidiary. This refinancing initiative is positive for CenterPoint Energy as it lowers the cost of capital for a significant portion of its subsidiary's debt. The lower interest rate will contribute to improved profitability for Southern Indiana Gas and Electric Company and, by extension, for the consolidated CenterPoint Energy. Investors should note that this is a tax-exempt debt, meaning the interest paid is not subject to federal income tax, which can be advantageous for certain investors. The bonds have a long-term final maturity in 2055, with expectations of another remarketing event in 2023.

Key Highlights

  • 1CenterPoint Energy's subsidiary, Southern Indiana Gas and Electric Company, remarketed $38.2 million in tax-exempt bonds.
  • 2The remarketing resulted in a substantial reduction in the fixed interest rate from 2.375% to 0.875% per annum.
  • 3The new lower interest rate is fixed through August 31, 2023, offering short-to-medium term interest cost certainty.
  • 4The remarketing is expected to lower the subsidiary's interest expense and improve its profitability.
  • 5The bonds have a final maturity date of September 1, 2055, indicating long-term financing.
  • 6The bonds were originally issued in 2015 and are subject to further remarketing in 2023.

Frequently Asked Questions

The primary impact is a reduction in interest expense for CenterPoint Energy's subsidiary, Southern Indiana Gas and Electric Company, due to the lower fixed interest rate on the remarketed bonds. This should lead to improved profitability for the subsidiary and the consolidated company.

The tax-exempt status of these bonds means that the interest income earned by bondholders is generally exempt from federal income tax. For the issuer, it often implies a lower interest rate compared to taxable debt, as investors may accept a lower yield for the tax benefit.

The new fixed interest rate of 0.875% per annum is in effect through August 31, 2023. After this date, it is expected that the bonds will be remarketed again, meaning the interest rate and terms may change at that time.

Yes, there is a risk that future remarketing conditions, including interest rates and market demand for tax-exempt debt, could be less favorable in 2023 than they are now. This could lead to a higher interest rate or other less advantageous terms for CenterPoint Energy's subsidiary.