Reliant Energy gets commitment for $650 million term loan

By Angela McDaniels

Tacoma, Wash., Sept. 29 - Reliant Energy, Inc. said it received a commitment for a $650 million senior secured term loan due November 2012 from GS Loan Partners on Monday.

Interest will be Libor plus 450 basis points with a Libor floor of 3.75% or a base rate plus 350 bps with a base rate floor of 4.75%, according to an 8-K filing with the Securities and Exchange Commission.

The term loan will be subject to a 10% prepayment premium during the first year, 5% during the second year, 3% during the third year and no prepayment premium in the fourth year.

The term loan will be equally secured with the same collateral that secures Reliant Energy's revolving credit agreement and senior secured notes, and the company's subsidiaries will be guarantors.

Covenants will include minimum availability and maximum hedging limitations as well as consolidated secured leverage and total leverage ratios.

The commitment is subject to the parties entering into a definitive credit agreement and Reliant Energy reaching a definitive agreement with Merrill Lynch about the unwinding of its credit-enhanced retail structure, under which Merrill Lynch provides guarantees and posts collateral for the supply purchases and related transactions of the company's retail energy business.

The company and Merrill Lynch are taking steps to end their credit-enhanced retail structure because of the current operating environment and Reliant Energy's decision to develop a new retail strategy aimed at lowering collateral requirements and providing more consistent earnings, according to a company news release.

The company also plans to sell $350 million of 14% convertible participating preferred stock to First Reserve Fund XII, LP in a private placement.

Reliant Energy had available liquidity of $1.2 billion as of Friday, and it will receive about $500 million of proceeds from the sale of its Bighorn plant in the fourth quarter. The company said it believes that these sources of liquidity, together with the term loan and private placement, will be enough to facilitate the unwinding of the credit-enhanced retail structure.

Plans for the new financings were announced in tandem with the company's lowered guidance for 2008. Reliant Energy revised its 2008 retail contribution margin outlook downward by $300 million to $350 million because of the effects of Hurricane Ike, including reduced sales volumes, the sale of excess supply, updates to retail pricing assumptions and increased storm-related operating costs.

Houston-based Reliant Energy provides electricity and energy services.

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