NEW YORK (The Deal) -- Talen Energy Corp. (TLN), now the third-largest independent power producer, inaugurated trading Tuesday, as its financial sponsor Riverstone Holding and publicly held power producer PPL Corp. (PPL) completed the asset merger announced a year ago.
Talen shares traded at about $18.50 a share in its first day of trading as a standalone company.
The transaction, announced June 9 last year, leaves PPL shareholders with 65% of the newly formed independent producer, while Riverstone holds 35% of the 83 million shares of Talen that were issued. PPL, formerly Pennsylvania Power & Light, which remains a regulated utility and had $11.5 billion in revenue last year, does not have a stake in Talen, which is based in Allentown, Pa. In the spinoff, PPL shareholders received 0.125 shares of Talen for each share of PPL.
Riverstone, with about $30 billion in committed capital, contributed about 5 gigawatts of operating capacity to the merger, which will have a combined operating capacity of just more than 15 million gigawatts. As part of the transaction, federal energy regulators required the combined company to sell off assets comprising about 1,300 gigiwatts of operating capacity. Riverstone contributed its RJS Power competitive power generation business to the merger, consisting of its Raven Power Holdings LLC, C/R Energy Jade LLC, and Sapphire Power Financial LLC.
The Raven Power operation, based in the Baltimore area, was formed with assets spun off by Exelon Corp. (EXC). That was required by regulatory agencies in order for the company to complete its 2012 $7.9 billion takeover of rival Constellation Energy Group. The Raven operation performed well enough last year to generate above-expectations cash flow that allowed the business to pay down debt and pay a dividend to Riverstone, credit agency reports at the time said.
The merger comes as the merchant power business is in a significantly changed landscape than was the case when the transaction was announced a year ago. According to a recent Moody's Investors Service report, the merchant power business is in a cyclical downturn because of low commodity prices and oversupply.
In a recent report on the prospective combination that forms Talen, however, Moody's said the addition of the RJS assets will significantly increase the scale and diversity of the Talen operations. Talen would rank behind Calpine Corp. (CPN) and NRG Energy (NRG) as the third-largest publicly traded independent power supplier. On a pro forma basis, the assets comprising Talen Energy generated annual revenue of $4.3 billion in 2014, the company said in a press release.
Moody's characterized Talen as having a good mix of fuel types (43% of its operations are fired by natural gas or oil, 40% by coal, 15% by nuclear and 2% by hydro), an above-average portfolio of operations and less leverage than its peers. Talen is expected to generate positive free-cash flow, and have available liquidity in cash and credit facilities of about $3 billion.