Xcel subsidiary NRG Energy provided further evidence last week that it’s between a financial rock and a hard place. The company said that it did not make $78.3 million in payments due Dec. 15 on its NRG Northeast Generating LLC bond series. Meanwhile, financial settlement negotiations among NRG, its parent company Xcel and its lenders and bondholders are expected to continue.

The missed payments include combined principal and interest obligations on 8.06% Series A-1 senior secured bonds due 2004, 8.84% Series B-1 senior secured bonds due 2015 and 9.29% Series C-1 senior secured bonds due 2024. NRG has a final deadline of Dec. 30 to make the payments on these series.

In reaction to the default, Standard and Poor’s Ratings Services cut NRG Energy Northeast Generating LLC’ credit rating to D Thursday from CC.

“We do not believe that these missed payments, nor the subsequent downgrade, will affect the course of NRG’s restructuring discussions,” said NRG COO Richard C. Kelly. “We are continuing to work with our lenders toward an overall restructuring of NRG’s debt and intend to address these payments as part of the broader plan.” NRG Northeast Generating LLC bond series are non-recourse to NRG and Xcel Energy.

Earlier in the week, NRG asked a bankruptcy court to dismiss an involuntary bankruptcy petition recently filed against it by several of its former executives (see Power Market Today, Dec. 18). NRG doesn’t believe bankruptcy is the best option and is continuing to attempt a financial settlement with its lenders outside the courtroom.

As many as seven former NRG executives are pursuing an involuntary bankruptcy case against the company. The petition was originally filed Nov. 22 in the U.S. Bankruptcy Court for the District of Minnesota (see Power Market Today, Nov. 26). The filing was made by ex-President and CEO David Peterson, former Treasurer Brian Bird, former executive John Noer, ex-CFO Leonard Bluhm and former Senior Vice-President Craig Mataczynski. The executives and two other former employees are seeking about $27 million in payments for deferred compensation, pensions and severance.

“Until NRG and its major creditor constituencies complete their restructuring discussions and determine a means for implementation, a reorganization case is not in the best interest of NRG or its creditors,” the company said in a statement. “In fact, the commencement of a Chapter 11 case by or against NRG, without the support of its major creditor constituencies and access to the additional working capital required to operate its business as a debtor in possession, likely would cause substantial harm to NRG’s business.”

NRG last month noted that in the event that it sought the dismissal of the petition, the court would then set a hearing to determine the merits of the petition — a process that could take several weeks or more. NRG will have the opportunity to present evidence and the court will have to judge whether the petition has any merit.

Over the last few months, the company has been engaged in negotiations with its bank lenders and bondholders to develop a plan for restructuring the company’s debt. In early November, an NRG restructuring plan was presented to the company’s creditors. The restructuring plan also included a proposal addressing Xcel’s continuing role and degree of ownership in NRG and obligations to the generator. The plan proposed upon consummation of the restructuring that Xcel would pay $300 million to NRG. The plan separately proposed that Xcel would surrender its equity ownership of NRG.

Xcel disclosed in a filing made at the Securities and Exchange Commission earlier this week that NRG’s bank steering committee in mid-December submitted a counterproposal to the NRG restructuring plan, which would require “substantial additional payments” by Xcel. “The bondholder creditor committee is not expected to issue its counterproposal to the NRG restructuring plan before the end of December 2002,” Xcel said. NRG Energy, a wholly owned and unregulated subsidiary of Xcel Energy, develops and operates power generating facilities.

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