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CenterPoint Energy tables spinoff option for Enable, is focused on outright sale

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CenterPoint Energy tables spinoff option for Enable, is focused on outright sale

CenterPoint Energy Inc. plans to exit its stake in Enable Midstream Partners through an outright sale, rather than pursuing a spinoff of the oil and gas infrastructure partnership, the company's leadership announced Aug. 3.

If a sale cannot be achieved, CenterPoint will sell down its stake in Enable through the public equity markets, the executives reiterated on CenterPoint's second-quarter earnings call.

CenterPoint investors have long awaited a resolution to the company's holdings in Enable, and leadership previously forecast a resolution by the second-quarter call. CenterPoint President and CEO Scott Prochazka said the sale process was still ongoing, however, with multiple parties completing due diligence.

"Given that the process remains ongoing, we issued another right of first offer to OGE in July for the terms of our partnership agreement," he said. "We did … recently determine that we will no longer pursue a spin option. We concluded that with a reasonable level of debt at SpinCo, we would not maintain the desired credit metrics for CenterPoint. Finally, if we are unsuccessful with an outright sale of our Enable investment, we will look for opportunities to constructively sell our units in the public market as conditions allow."

CenterPoint owns 54.1% of Enable's common units, OGE Energy Corp. owns 25.7%, and public unitholders own the remaining 20.2% of Enable. In a mid-July ownership filing, Enable disclosed that CenterPoint intended to reduce its ownership by a sale of common units in the public equity markets if it did not find the sale or spin to be viable options.

William Rogers, CFO of CenterPoint, said the company will continue to financially support Enable as well as its efforts to reduce commodity price exposure. During the call, Rogers also acknowledged the limitations of a sale of public units in the equity market.

"We are very aware of capital markets limitations such as average daily volume. Therefore, we would be patient and sell units opportunistically under the right capital markets conditions," he said. "Any sales would be in accordance with the partnership agreement. We have not established nor do we intend to communicate an objective on the target price, timing or amount of unit sales. We are only communicating that we would look for the opportunity to reduce the size of our midstream investment should market conditions allow and in the event an outright sale is not viable."

Tabling the spinoff option caught Tudor Pickering Holt & Company analysts off guard, and they said CenterPoint should hold on to its stake but work to reduce its exposure to oil and gas volatility. "Reducing exposure via the public market is an option CNP still points to, but ENBL's stock has dropped ~10% up until its earnings call when CNP disclosed this strategy in its 7/18 13D filing," the Tudor analysts wrote in an Aug. 3 note.

The talk of unit sales could be a power play from CenterPoint, CreditSights analysts said in an Aug. 3 note. "We think they are clearly putting pressure on OGE Energy to make a better bid for the ENBL position than others are offering," according to the note.

Outside of its midstream strategic review, Prochazka noted that subsidiary CenterPoint Energy Houston Electric LLC continues to experience strong growth in its electric service territory. It has added more than 46,000 residential customers since the second quarter of 2016 and expects growth to continue. Total electric throughput is up 2.5% over the same time frame.

In July, the Public Utility Commission of Texas signed off on Houston Electric's settlement agreement for an incremental annual increase of $42 million through the distribution cost recovery factor, or DCRF, according to Prochazka. Rates will go into effect Sept. 1, he said. "Further, with respect to DCRF, the Texas Legislature recently removed the four filing limit, which means Houston Electric will be eligible to file DCRF each year provided the business is earning below its authorized rate of return," he added.

Prochazka noted that CenterPoint Energy is cooperating with authorities investigating an Aug. 2 gas explosion at a Minneapolis school in its service territory and will share more information as it can. The explosion killed two people, sent several people to the hospital and caused a partial collapse of the building.

CenterPoint Energy on Aug. 3 reported second-quarter 2017 adjusted net income on a guidance basis of $125 million, or 29 cents per share, compared to $73 million, or 17 cents per share, in the second quarter of 2016. The S&P Capital IQ consensus normalized EPS estimate for CenterPoint Energy in the second quarter of 2017 was 22 cents.