Although it remains optimistic about being able to delay having to post billions of dollars worth of collateral triggered by a series of recent ratings downgrades, NRG Energy last week wasn’t able to rule out the possibility of having to file for bankruptcy if it falls short in its ongoing efforts to obtain waivers or modifications of the massive collateral requirements facing the Xcel Energy subsidiary.

NRG Energy has been scrambling to right its financial ship in the wake of recent debt downgrades. Moody’s Investors Service in late July lowered NRG Energy’s senior unsecured debt rating from Baa3 to B1 and assigned a senior implied rating of Ba3 to the company. Standard and Poor’s followed suit shortly thereafter on Aug. 7 by lowering the corporate credit rating of NRG Energy to B+ from BB, stating that the rating now reflects the company’s stand-alone credit quality.

NRG Energy, in its latest quarterly report filed at the Securities and Exchange Commission on Aug. 14, noted that many of the corporate guarantees and commitments of the company and its subsidiaries currently require that they be supported with letters of credit or cash collateral within five to 30 days of a ratings downgrade by Moody’s or S&P.

As a result of the downgrades, NRG Energy estimates that it will be required to post collateral ranging from $1.1 billion to $1.3 billion.

Of the collateral to be posted, NRG Energy said that:

NRG Energy said that it is working with its lenders to obtain waivers to delay the posting of the collateral. “NRG Energy expects to be successful in working with its lenders concerning these issues,” the company said.

Prior to the ratings downgrade, NRG Energy said that it expected to meet the collateral requirements with available cash, operating cash flows, equity contributions from Xcel Energy, proceeds from asset sales and the issuance of bonds into the capital markets or as a private placement.

But, as a result of the current environment in the capital markets, NRG Energy said that it “is most likely not able to access the capital markets in a sufficient amount or on a timely basis to meet the liquidity requirements in the near term.” The failure to post the required collateral will result in a default on a majority of NRG Energy’s project level debt unless waivers are obtained.

“IF NRG Energy is unable to obtain waivers of modifications of these collateral requirements and the debt obligations are accelerated, NRG Energy would need to refinance or restructure its outside debt obligations and, if unsuccessful in these efforts, to consider all other options, including a restructuring under the bankruptcy laws.”

NRG Energy also warned that it could exhaust its existing liquidity resources during October of this year. Such a scenario is built around an assumption that it gets the waiver of cash collateral requirements but no new liquidity sources, other than expected proceeds from near term asset sales combined with aggressive cost management and deferrals of certain payments.

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