Concerns mount that NM regulators could reject Avangrid-PNM deal | AGR Message Board Posts

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Msg  16 of 26  at  12/7/2021 12:13:22 PM  by


Concerns mount that NM regulators could reject Avangrid-PNM deal

from SNL Energy Finance Daily

Concerns mount that NM regulators could reject Avangrid-PNM deal

Byline: Allison Good, Darren Sweeney

Shares of PNM Resources Inc. and Avangrid Inc. tumbled Dec. 2, a day after a contentious meeting in which three members of the New Mexico Public Regulation Commission spoke out against the companies' proposed merger.

The commissioners made their comments during an information session Dec. 1, which did not include a formal vote, the Santa Fe New Mexican reported.

PRC Chairman Stephen Fischmann called the merger "fool's gold" that wouldn't pay off for customers of PNM utility subsidiary Public Service Co. of New Mexico, according to the newspaper.

Shares of PNM Resources fell more than 6% in trading Dec. 2, with shares of Avangrid falling nearly 3%.

"Per the agenda, the plan was simply to have the assigned hearing examiner (HE) present his recommended decision ... the commissioners somewhat surprisingly let their true feelings about the deal be known before ending the discussion later in the day," analysts at Wells Fargo Securities told clients Dec. 2,

"The deal is clearly on the ropes at this point and time may not be on AGR/PNM's side," the analysts wrote, adding that "stranger things have happened at the 11th hour in regulatory matters."

"Conditional approval appears slim at this point," they added. "However, if a path to closure is offered to AGR/PNM, Commisioner [Joseph] Maestas made it clear that additional conditions beyond those in the [recommended decision] and beyond just financial/economic incentives would need to be attached to make it in the public interest."

Terms of the deal

Orange, Conn.-headquartered Avangrid in October 2020 announced plans to acquire Albuquerque, N.M.-headquartered PNM Resources in a $4.32 billion cash deal that includes the assumption of about $4 billion in debt for an overall enterprise value Avangrid put at $8.3 billion. PNM also has utility operations in Texas under the name Texas-New Mexico Power Co.

Under the merger agreement, the deal may be terminated by either party under certain circumstances, including failure to consummate by Jan. 20, 2022, subject to a three-month extension.

If Avangrid terminates the deal due to a change in PNM board recommendation or if PNM terminates the deal to accept a superior proposal, PNM will have to pay Avangrid a termination fee of $130 million.

If one of the companies terminates the deal due to a failure of a regulatory closing condition or if Avangrid fails to close the deal when all conditions have been met, Avangrid will have to pay PNM a termination fee of $184 million.

Avangrid's parent company, Iberdrola SA, provided a funding commitment letter for the entire equity proceeds for the transaction. Spain's Iberdrola owns an 81.5% equity interest in Avangrid.

"Overall, we see enough positives if the deal were to fall through to offset the negatives from a bondholder perspective," CreditSights analyst Andrew DeVries wrote in a Dec. 2 research report focused on the fallout for Avangrid. "Avangrid can obviously use the uptick in regulated earnings as its [Avangrid Renewables LLC] arm continues to grow at a robust rate ... but the company still operates with a solid stand-alone credit metric profile which serves as an offset to its higher non-utility earnings base."

The next steps

In November, Regulatory Research Associates' Jim Davis wrote that a certification of stipulation issued by the hearing examiner assigned to the docket did provide a path forward for the deal's completion, and that "the only remaining apparent obstacle to the transaction is the structure of [Public Service Co. of New Mexico's] board of directors." Regulatory Research Associates is a group within S&P Global Market Intelligence.

While hearing examiner Ashley Schannauer on Nov. 1 recommended that the PRC reject a settlement filed on June 4, the examiner also recommended the commission "should consider asking" the signatory parties to the June 4 settlement to agree to certain modifications "as the basis for the commission's approval." (PRC Docket No. 20-00222-UT)

"I stand by that," Schannauer told commissioners at the Dec. 1 hearing, according to a report in the Albuquerque Journal. "I recommend that the merger not be approved."

PNM responded in a news release.

"We are disappointed that yesterday's discussion did not provide a more balanced view of the proposed transaction," PNM Resources Chair, President and CEO Patricia Vincent-Collawn said in the early Dec. 2 release. "We look forward to having both sides of the merger discussed as the commission continues its deliberations. We respect our regulatory system, and we are hopeful that when all the facts are considered, the merger benefits and opportunities will be realized for all New Mexicans."

The CEO noted that the PRC's discussion did not include filings made following the hearing examiner's certification for stipulation through which the companies agreed to the recommended commitments and the other signatories to the stipulation indicated their support for the merger with those commitments.

The PRC could discuss the merger again at its Dec. 8 open meeting before holding a formal vote.

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