At literally the eleventh hour, Reliant Resources Inc. (RRI) last week successfully completed a $6.2 billion financing package to refinance $5.9 billion of existing bank credit facilities with new ones that won’t mature until 2007. The lenders also provided the cash-poor company a $300 million line of credit, which matures in 2004.

The terms of the refinancing will permit RRI to exercise its option to acquire from CenterPoint Energy Inc. its 81% interest in Texas Genco Holdings Inc., which owns approximately 14,000 MW of generation in Texas.

“With the completion of this new financing package, the company has no significant near-term debt maturities,” said CEO Steve Letbetter. “We greatly appreciate the support of our lenders that led to a mutually beneficial agreement.”

The $5.9 billion refinancing replaces the company’s $2.9 billion Orion acquisition bridge loan, an $800 million revolving credit facility that was converted to a term loan, an additional $800 million revolving credit facility and construction agency agreements totaling $1.4 billion. The new facilities include a $2.1 billion revolving credit facility and $3.8 billion of term loans, all of which mature in 2007.

During a conference call to discuss the new package, Letbetter could not avoid questions relating to what the company may have hoped was old news: RRI’s deals with BP plc in California. The Federal Energy Regulatory Commission ruled last month that RRI had conspired with BP to manipulate prices during the state’s energy crisis (see NGI, March 31).

Letbetter, who acknowledged the deals, said there were three occasions in 2000 when an unidentified RRI trader sold power to a BP counterpart and then bought the power back at the same price. The companies now have been ordered to prove to FERC that they did not break the law, or they could lose their right to sell power in wholesale markets. Since the incident, Letbetter said RRI had tightened its supervision of traders. “As a substantial gas consumer, higher prices do not benefit Reliant,” he said. “We will work closely with FERC to assure a reasonable outcome.”

The CEO noted that FERC officials were aware of the BP trades before settling other allegations that Reliant withheld power from California during the state’s energy crisis. RRI has fired the trader involved in the BP transactions, and BP has placed its trader on administrative leave.

However, whatever the outcome of the FERC decision, Letbetter assured investors and analysts that RRI would be able to sell power at rates based on production costs if it loses its marketing license. COO Stephen Naeve added that production cost rate sales would actually increase profit in 2003 because the market prices currently are lower.

S&P maintained its “CreditWatch developing” listing for RRI, reflecting the overhang of the FERC’s show cause order relating to power trading during the California energy crisis. “The penalty for this may be a revocation of RRI’s authority to sell power at market-based rates,” S&P noted. RRI has 21 days from the date of the order to show cause as to why its authority should not be revoked.

The alternative to selling power at market-based rates is to sell at cost of service-based rates. “At this point, it is unclear what the financial effect of such a penalty would be,” S&P said. “RRI’s ratings may be raised, lowered, or affirmed depending on the resolution of the show cause order and the ultimate effect on RRI’s business position.”

©Copyright 2003 Intelligence Press Inc. Allrights reserved. The preceding news report may not be republishedor redistributed, in whole or in part, in any form, without priorwritten consent of Intelligence Press, Inc.