Fitch says Reliant Resources unchanged

Fitch Ratings said Reliant Resources, Inc.'s ratings are unchanged including its senior secured debt at B+, senior unsecured debt at B and convertible senior subordinated notes at B- with a stable outlook in response to the announcement that Reliant has reached a settlement agreement with the Federal Energy Regulatory Commission with respect to certain western energy market investigations.

The terms of the settlement are consistent with Fitch's prior expectation that the various regulatory investigations facing Reliant would ultimately be settled in a manner that would not materially impact the company's near-term liquidity position.

Under the terms announced yesterday, Reliant's financial exposure will be capped at $50 million consisting of $25 million cash (consisting of three installment payments through 2006) and the forfeiture of up to $25 million of potential profits through the offering of 824 megawatts of generating capacity into the California market through 2006.

Importantly, Reliant will not lose its market-based rate authority under the terms of the settlement thus removing uncertainty over Reliant's ongoing ability to participate in the Western wholesale power market, Fitch said.

S&P says Reliant Resources' unchanged

Standard & Poor's said Reliant Resources Inc.'s ratings are unchanged including its corporate credit at B with a negative outlook following the announcement that the FERC approved a settlement relating to various investigations concerning the Western markets.

The settlement resolved any issues relating to potential price manipulation in the Western markets, the show cause order, and the physical withholding and anomalous bidding investigations. However, the agreement with the FERC does not resolve any issues related to the refund proceedings.

The settlement includes an initial payment of $15 million to be made within 30 days and additional $5 million payments in 2005 and 2006. In addition, Reliant is required to auction the generating capacity of four units located in California for basically its cash costs. Reliant must continue to auction this capacity for either three years or until the excess of the bids over the cash costs equals $25 million. Therefore, total potential cost to Reliant is limited to $50 million.

From a liquidity perspective, the settlement does not impair Reliant as it can fund the amounts from operating cash flow or its revolving credit facility, S&P said. Overall credit risk is somewhat lessened as this regulatory overhang has been resolved.

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