CenterPoint Energy is returning to the convertible bond market for US$900m of new funding to repay commercial paper borrowings.
Goldman Sachs, Wells Fargo, Morgan Stanley, RBC Capital Markets and BMO Capital Markets are marketing the new three-year CB at a 2.75%-3.25% coupon and 25%-30% conversion premium for pricing after the market closes on Monday.
The Texas-focused regulated utility is using the proceeds to repay a portion of the US$2bn in commercial paper borrowings outstanding as of June 30, on which it pays a rate of 4.6%.
Early in Monday’s session, CenterPoint shares were off 1.6% to US$37.75, implying a conversion price on the new CB of roughly US$48.00, well above all-time highs. In mid-2023, the utility issued a US$1bn CB that matures in August 2026 and is convertible at share prices above US$36.86.
In theory, that earlier CB was designed to be low-cost debt with little chance of converting – in reality, the utility only needs to account for stock dilution for incremental shares to be issued above the conversion price.
Like other US utilities, CenterPoint is spending massively to keep up with growing demand for power from data centers and other industrial customers. In reporting Q2 results, the utility last week hiked the amount it plans to spend on capex by US$500m to US$5.5bn, increasing 10-year capex through 2030 to US$53bn.
This is the third time this year that CenterPoint has increased its planned capex for 2025, adding six gigawatts of committed interconnections since it announced Q1 earnings in April.
“The six gigawatts we reference . . . is not trivial at all,” said CenterPoint CEO Jason Wells on the Q2 earnings call. “What I think is really unique and what we try to highlight is the diverse set of drivers that are driving that increase.
“About two-thirds of that increase relates to data center activity. The other one-third, I would put more in the camp of advanced manufacturing, energy exports, and life sciences.”
Somewhat significantly, CenterPoint said it would not need to issue equity to support the expanded capex plans. The 2030 capex plan will require US$2.75bn of equity, though one-third of that has already been issued through forward sales of stock, including US$900m raised in May from the forward sale of 24.9m shares at US$36.26.
The new CB is not equity but debt.