Q1 2010 Earnings Call
May 07, 2010 9:00 am ET
Edward Muller - Chairman, Chief Executive Officer, President and Member of Executive Committee
John O'Neal - Chief Commercial Officer and Senior Vice President
Steve Himes - Manager of Investor relations
J. Holden - Chief Financial Officer and Senior Vice President
Angie Storozynski - Macquarie Research
Nitin Dahiya - Lehman Brothers
Daniel Scott - Dahlman Rose & Company, LLC
Brandon Blossman - Tudor Pickering
Julien Dumoulin-Smith - UBS Investment Bank
Robert Howard - Prospector Partners
Previous Statements by MIR
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Good day, everyone, and welcome to the Mirant Corporation's First Quarter 2010 Earnings Call. For opening remarks and introductions, I would like to turn the call over to Mr. Steve Himes, Director of Investor Relations of Mirant. Please go ahead, sir.
Thanks, Regina. Good morning, everyone, and thank you for joining us today for Mirant's First Quarter 2010 Earnings Call. If you don't already have a copy, the press release, financial statements and first quarter filing with the SEC are available on our website at www.mirant.com. The slide presentation is also available on our website, and a replay of our call will be available approximately two hours after we finish.
Speaking today will be Ed Muller, Mirant's Chairman and Chief Executive Officer; and Bill Holden, Mirant's Chief Financial Officer. Also in the room and available to answer questions are John O'Neal, Mirant's Chief Commercial Officer; Paul Gillespie, Senior Vice President of Tax; and Gary Garcia, our Treasurer.
Moving to Slides 2 and 3. The Safe Harbor. During the call, we will make forward-looking statements which are subject to risks and uncertainties. Factors that could cause results to differ materially from management's projections, forecasts, estimates and expectations are discussed in the company's SEC filings. We encourage you to read them. Our slide presentation and discussion on this call may include certain non-GAAP financial measures. For sure measures, reconciliation to the most directly comparable GAAP measure is available on our website or at the end of our slide presentation. And with that, I'd like to turn it over to Ed.
Thanks, Steve, and good morning, everyone. I'll start on Slide 4, and I'll try and remember to tell you what slide I'm on. And the folks here in the room will remind me if I forget.
Let me start by reiterating some of the key aspects of our announcement on April 11 that we will merge with RRI Energy to form GenOn Energy. As we've previously said, we expect to complete the merger by the end of 2010. The strategic drivers of the transaction are shown on Slide 4.
And first, among them is that the merger will create real and immediate value to the significant cost savings we expect to achieve as a merged entity. We remain confident we will realize $150 million in annual cost savings through a reduction in corporate overhead. We expect to be able to capture these savings quickly, achieving the full $150 million run rate at the start of 2012.
Second, we will have a stronger balance sheet, ample liquidity and increased financial flexibility. This will further improve financial stability and enable the combined company to navigate better through industry cycles and commodity price fluctuations. Third, GenOn will be one of the largest independent power producers in the United States, with over 24,700 megawatts of generating capacity. With increased scale and greater diversity across core geographies and dispatch, GenOn will be strategically well positioned in our key markets.
And fourth, we think merging these two companies now under this structure leaves both sets of stockholders well positioned to capture fully any upside resulting from improvements in market fundamentals. In essence, the stockholders of each company will be invested in the same business with a more efficient scale structure.
Turning to Slide 5. The steps to close the transaction. They include our planned refinancing of both companies revolvers and addressing $1.8 billion of debt comprised of the following: The Mirant North America Senior Secured Term Loan due in 2013, the Mirant North America Senior Notes due in 2013, the RRI Energy Secured Bonds due in 2014 and RRI's Pennsylvania Economic Development Financing Authority or PEDFA Secured Notes due in 2036. We will also need the approval of the stockholders of both Mirant and RRI and we'll need regulatory approvals from the FERC and the New York Public Service Commission and clearance in the Hart-Scott-Rodino Improvements Act. We made the necessary filing with the New York PSC on April 23.
Turning now on Slide 6 to the first quarter. As we announced this morning, our adjusted EBITDA was $162 million, down from our results in the first quarter of 2009. Although our strategy is to hedge, the value of hedges depends on when we put them on. Given declines in commodity prices, it’s to be expected that the value of our hedges in the first quarter of 2010 was less than the value of hedges in the first quarter of 2009. We also had lower energy gross margins in the Northeast and lower gains from sales on admissions allowances. Some of those declines were offset by higher energy gross margins in the mid-Atlantic. Bill Holden will go through all of this in more detail shortly.
Turning now to Slide 7. In February, when we announced our results for 2009, we noted that in 2009, our safety performance and commercial availability had improved significantly over prior years. As you'll see, our performance in the first quarter this year continued that trend. Our commercial availability, that is the percent of maximum achievable gross margin that was achieved, was 93% in the first quarter.