Asrumors emerge that Talen EnergyCorp. is considering a leveraged buyout offer, CreditSightsanalysts say the company is "pulling a complete 180" from itsprevious view onadditional debt reduction.

TalenEnergy executives said May 10 the close of the sale of two hydroelectric facilities in Aprilbrought in $860 million of gross proceeds as the company completed its .This also led to a $20 million increase in Talen's 2016 adjusted EBITDA guidance and$10 million increase to its 2016 adjusted free cash flow guidance.

Talen,however, said it is waiting on deploying this capital until a on thepotential gas conversion of its Montour coal plant and sale or relocation of itsHarquahala plant,with the relocation seen as a "substantial" investment.

"Wejust want to have clarity on that before we take all this capital and dosomething with it," Talen Energy Senior Vice President, CFO and ChiefAccounting Officer Jeremy McGuire said on the company's first-quarter 2016earnings call.

Talenis "very cautious about doing anything in the capital markets to shrinkour debt" before deciding what to do with the plants, he added.

Thestance comes as Bloomberg, citing unnamed sources, reported May 6 that privateequity firm Riverstone HoldingsLLC could be nearinga deal for the merchant generator.

TalenEnergy was formedthrough the merger of PPLCorp.'s PPL Energy Supply and a portfolio of assets owned byRiverstone, which now has a 35% stake in the company.

"Wewonder if debt buy backs would knock down the potential offer price for [TalenEnergy]," CreditSights analysts wrote. "Debt buybacks would becompletely counter intuitive to an LBO; future purchasers could be threateningto lower their bid if [Talen Energy] vaporizes shareholder cash on debt buybacks."

CreditSightssaid Talen is "sitting on" approximately $1.25 billion in cash and is"significantly under leveraged when compared to the peer group at 6.0xdebt/EBITDA."

"Givenall of the sizable capital investments and unconventional investments likemoving [Harquahala] and coal to gas boiler switching … [Talen Energy] might bebetter suited for the private markets outside the guise of public marketscrutiny," the analysts wrote. "For this reason it does make sense tous that Riverstone which already knows the assets quite well may not mindtaking control of [Talen Energy] and exiting when public IPP markets arestronger."

CreditSightsanalysts, citing a SparkSpread report on a leveraged buyout of Talen, said in anApril 5 report that the "much more likely course of action" is forthe company to use its excess debt to acquire assets.

"Acombination of an acquisition or repowering an older coal plant in PJM (theyhave several) with combined cycle gas turbines makes much more sense than anLBO," the analysts wrote.

TalenEnergy President and CEO Paul Farr said in November 2015 that the company wouldconsider going private for the right offer and evaluate opportunities that "drovesignificant shareholder value creation beyond what was represented in the dailyprice."

Whileacknowledging that current "cash flows look compelling" and"scale is important," Farr said May 10 that executives"do not comment orspeculate on market rumors."

TalenEnergy shares rose 3.51% to $12.97 in below-average trading on Wednesday, May11.