Almost a year after Enron Corp. filed for bankruptcy protection, NRG Energy and Reliant Resources find themselves unable to rule out the possibility they won’t ultimately find themselves traveling down the same Chapter 11 path that the former energy trading giant did in December 2001.

Reliant last month successfully refinanced three syndicated bank credit facilities for Orion Power Holdings Inc., Orion Power MidWest LP and Orion Power New York LP. The refinancings, which total $1.57 billion in commitments, provide a three-year extension of maturities. Interest rate swaps totaling $950 million related to Orion Power MidWest and Orion Power New York were also extended.

But Reliant’s not out of the woods just yet. The company still needs to refinance its debt by February 2003 when a $2.9 million bank loan matures. The company plans to negotiate a “global refinancing” for holding company debt, which totals $5.9 billion, including a synthetic lease, an analyst with Standard & Poor’s recently noted (see Power Market Today, Oct. 30).

“If we are unable to complete the necessary future refinancings on acceptable terms and conditions, given the magnitude of the refinancings, we may be forced to consider a reorganization under the protection of bankruptcy laws,” Reliant said in its most recent quarterly report filed at the Securities and Exchange Commission (SEC) at the end of last week.

Shares of Reliant on Monday were pounded mercilessly by investors after news of the bankruptcy possibility hit the wires. The stock finished the trading session off by just over 12% to close at $1.83 per share.

A recent S&P report examining refinancing challenges facing merchants said that Reliant Resources is “particularly at risk given that its refinancing need is significant at 44% of overall capitalization.” The report compared the magnitude of refinancings for the next four years as a percent of total capitalization and as a percent of total debt outstanding (calculated as of June 30, 2002) for the 10 largest exposures. “Reliant’s future is highly dependent on its banking relationships, and the willingness of the banks to refinance on acceptable terms,” S&P said.

The ratings agency also said that for maturities due in 2003, companies most at risk are Reliant Resources, American Electric Power Co. Inc. Dynegy Inc. and PG&E NEG. “Again, the calculation is based on consolidated totals, and for certain companies the debt to be refinanced is at non-recourse subsidiaries. Noteworthy is Reliant, which has 85% of its total debt due in 2003. This is more than twice the amount, as a percent of total debt, of any other company’s refinancing needs.”

Meanwhile, the specter of bankruptcy continues to loom over NRG, Xcel acknowledged in its 10Q filing made at the SEC on Monday. The filing notes that NRG submitted a restructuring plan on Nov. 4 to its various lenders, bondholders and other creditor groups.

“Whether NRG does or does not reach a consensual arrangement with NRG’s creditors, there is a substantial likelihood that NRG will be the subject of a bankruptcy proceeding,” Xcel said in the 10Q filing. “If an agreement were reached with NRG’s creditors on a restructuring plan, it is expected that NRG would commence a Chapter 11 bankruptcy case and immediately seek approval of a prenegotiated plan of reorganization.”

Xcel said that absent an agreement with NRG’s creditor and the continued forbearance by such creditors, the generator “will be subject to substantial doubt as to its ability to continue as a going concern and will likely be the subject of a voluntary or involuntary bankruptcy proceeding.”

Citing the lack of a prenegotiated plan of reorganization, such a scenario would be expected to take an extended period of time to be resolved and may involve claims against Xcel under the “equitable doctrine” of substantive consolidation.

The doctrine allows a bankruptcy court to disregard the separateness of related entities, to consolidate and pool the entities’ assets and liabilities and treat them as though held and incurred by one entity. Xcel noted that this doctrine is the “exception to the rule,” especially in cases where one of the companies involved is not in bankruptcy.

“Xcel Energy believes that any effort to substantively consolidate Xcel Energy with NRG would be without merit,” the company said in the quarterly filing. But Xcel said that it is possible that NRG or its creditors could attempt to advance such claims should an NRG bankruptcy proceeding occur, particularly in the absence of a prenegotiated plan of reorganization. Xcel “cannot be certain how a bankruptcy court would resolve the issue.”

Xcel earlier this month said that NRG had not filed for Chapter 11 and had no imminent plans to file for bankruptcy protection. The official statement from Xcel followed reports in editions of the Wall Street Journal that NRG had presented a plan to its lenders under which the Minneapolis-based generator would file for bankruptcy protection (see Power Market Today, Nov. 11).

Xcel’s assurances that NRG was not about to file for bankruptcy came on the same day that the company also disclosed that its construction revolver lenders had demanded an accelerated payment of $1.1 billion. Analysts at Williams Capital believe the “final nail has been hammered into NRG’s coffin” with this new requirement (see Power Market Today, Nov. 12).

Following Enron’s death spiral into bankruptcy last year, and in the wake of continued depressed wholesale power prices and credit crunches throughout much of the power sector, industry observers have become increasingly convinced it’s a matter of when, not if, additional Chapter 11 filings will occur. S&P analyst Peter Rigby predicted as much in a report issued a couple of months ago. “Few doubt that one or more energy merchant companies may soon file for bankruptcy. Signals are appearing and getting stronger” (see Power Market Today, Sept. 4).

Perhaps raising the odds for such an eventuality is the fact that along with NRG and Reliant, bankruptcy remains a real possibility for PG&E Corp.’s PG&E National Energy Group (NEG). The merchant energy unit of PG&E recently defaulted on two loans and had to witness its credit ratings tossed to the bottom of the junk status category (see Power Market Today, Nov. 18).

Another former highflying trading giant, Dynegy, also continues to face the unhappy prospect of filing for Chapter 11. In its latest 10Q filing made last week, Dynegy noted that it has executed on the principal elements of its capital plan in order to meet its current obligations as they mature and provide the necessary collateral to support its commercial operations.

Dynegy believes that the combination of its liquidity initiatives and the roll off of collateral and cash flow from its exit from third party risk management aspects of the marketing and trading business should allow it to refinance all or a sufficient portion of its second quarter 2003 maturities.

But Dynegy continues to face “significant risks” related to its ongoing operations. “If Dynegy fails to execute the remaining elements of its strategy, it may be forced to consider other strategic alternatives including a possible reorganization under the protection of federal bankruptcy laws,” the generator said.

This is not the first time the power supplier has mentioned the possibility of having to file for bankruptcy. Dynegy this summer warned of such a potential course of action if its then pending sale of Northern Natural to Berkshire Hathaway’s MidAmerican Energy fell through or was significantly delayed (see Daily GPI, Aug. 16). The Northern Natural deal was subsequently closed the same month (see Daily GPI, Aug. 19).

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