NRG slides with rejection of Exelon bid; GM, Ford soften in quiet market

By Sara Rosenberg

New York, Nov. 10 - NRG Energy Inc.'s strip of institutional bank debt gave up some ground during the quiet Monday trading session after news emerged that the company's board of directors decided not to accept Exelon Corp.'s acquisition proposal.

In other trading news, General Motors Corp. and Ford Motor Co. both saw their term loan levels head lower as the overall cash market had a somewhat flat to slightly weaker tone.

NRG softens as buyout denied

NRG Energy's strip of institutional bank debt weakened on Monday as the company's board of directors rejected the buyout proposal bid from Exelon, a transaction that would have likely resulted in a refinancing of the debt, according to a trader.

The company's term loan and letter-of-credit facility strip was quoted at 87½ bid, 89 offered, down about 1¾ points on the day, the trader said.

In October, Exelon put forward an offer to purchase NRG in an all-stock transaction with a fixed exchange ratio of $26.43 for each NRG common share - representing a total equity value of about $6.2 billion based on Exelon's closing price on Oct. 17.

This past Sunday, NRG said that its board of directors unanimously determined that the unsolicited proposal from Exelon significantly undervalues the company and is not in the best interests of shareholders.

Specifically, NRG believes that the opportunistically timed proposal from Exelon grossly undervalues NRG on both an absolute basis and relative to Exelon's share value.

In addition, the board was not happy that, based on the proposed fixed exchange ratio of 0.485, NRG stockholders would own 17% of the combined company while contributing 30% of a combined company recurring cash flow in 2008.

NRG points to financing as an issue

Another point of contention by NRG about the proposed acquisition was that committed financing has not yet been obtained and Exelon has had its credit rating downgraded.

Upon bidding for the NRG, Exelon said that a substantial amount of NRG debt may need to be refinanced upon a change of control, but that based on discussions with its financial advisors, it believed its could arrange for the refinancing.

According to NRG, on Oct. 20, Exelon stated that it would have fully committed financing in place over the next few days. On Oct. 21, Exelon's corporate credit rating was downgraded and placed on credit watch with negative outlook, and in a letter on Nov. 3, Exelon said that it could only arrange fully committed financing if NRG made its financial resources available to Exelon.

"Your obvious difficulties on both the debt financing and credit rating front since your public bid supports our conclusion that, even apart from your proposal's substantial undervaluation of NRG, your proposal is so highly conditional that it has severe implementation risk for which NRG shareholders are in no way compensated," NRG said in a letter to Exelon.

"As to your Nov. 3 suggestion that we work together to secure bondholder consent, or some other structural solution to keep the bonds in place, it would seem that your own experience over the past two weeks would have caused you to conclude that this credit environment is not the most opportune time to refinance all or a major portion of NRG's long-term debt," the letter continued.

Exelon was hoping to help NRG balance sheet

When announcing the purchase proposal, Exelon had said that the acquisition of NRG would create the largest power company in the United States, with sufficient financial and operating strength to address the nation's increasingly urgent energy needs.

Exelon pointed out that NRG is highly leveraged with over $8 billion of debt and a credit rating of Ba3/B+, and the hope was that the combination of the two companies would reduce the leverage associated with NRG's current business and enhance its credit rating - even though the proposal reduced Exelon's ratings.

NRG is a Princeton, N.J.-based owner and operator of diverse power generation portfolios and Exelon is a Chicago-based electric utility.

GM, Ford lose ground

General Motors' and Ford's term loans traded down during Monday's market hours as the overall cash market was unchanged to slightly weaker with little to no trading taking place, according to a trader.

General Motors, a Detroit-based automotive company, saw its term loan quoted at 45 bid, 48 offered, down a half a point from Friday's closing levels, the trader said.

And, Ford, a Dearborn, Mich.-based automotive company, saw its term loan quoted at 46 bid, 48 offered, down about a point from Friday's close, the trader remarked.

GM, Ford still hurt by downgrades, earnings

Both General Motors and Ford had a disappointing day on Friday as the two companies got hit with rating downgrades and posted weak earnings results, and this negative energy seemed to carry itself into Monday's session.

On Friday, General Motors' term loan had dropped about six points on the day and Ford's term loan had dropped about three points on the day.

During that session, Standard & Poor's lowered General Motors corporate credit rating to CCC+ from B-, Fitch Rating put General Motors' CCC issuer default rating on watch negative, Moody's Investors Service lowered Ford's corporate family rating to Caa1 from B3, and S&P left Ford's B- corporate credit rating on CreditWatch with negative implications.

These ratings actions were somewhat attributed to the third-quarter earnings results that the two companies had released on Friday morning.

For General Motors, net loss was $2.5 billion, or $4.45 per share, compared with a net loss from continuing operations of $42.5 billion, or $75.12 per share, and revenue was $37.9 billion, down from $43.7 billion.

Ford's net loss was $129 million, or $0.06 per share, compared with a net loss of $380 million, or $0.19 per share, and revenue was $32.1 billion, down from $41.1 billion.

General Motors facing liquidity crunch

Also on Friday, General Motors had revealed that estimated liquidity during the remainder of the year will approach the minimum amount necessary to operate its business and will fall significantly short in the first two quarters of 2009

On Sept. 30, cash, marketable securities and readily available assets of the Voluntary Employees' Beneficiary Association trust totaled $16.2 billion, down from $21 billion on June 30.

The change in liquidity reflects negative adjusted operating cash flow of $6.9 billion in the third quarter. During the quarter, the company drew the remaining $3.5 billion of its secured revolving credit facility and made $1.2 billion in payments to Delphi Corp. as required by agreements between the companies as part of Delphi's bankruptcy proceedings.

The company added that the 2009 liquidity shortfall could be prevented if economic and automotive industry conditions significantly improve, it receives substantial proceeds from asset sales, takes more aggressive working capital initiatives, gains access to capital markets and other private sources of funding, receives government funding under one or more current or future programs, or some combination thereof.

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