Moody's revises Reliant to SGL-4

Moody's Investors Service said it changed the speculative grade liquidity rating for Reliant Energy Inc. to SGL-4 from SGL-3 reflecting Moody's view that, over the next 12 months, the company's liquidity profile is weak.

The change in rating is due in part to high natural gas commodity prices, hedge losses and a challenging retail and wholesale market environment. As a result, Moody's believes Reliant will produce relatively weak operating cash flows, which may require the company to obtain waivers or amendments to the financial covenants under its bank credit facilities in order to maintain access to the facilities.

For the latest 12 months ended September, Reliant reported negative cash from operations of about $340 million, which includes an increase in margin deposits on energy trading and hedging of approximately $975 million, the agency said.

The cash flow generated was not sufficient to cover Reliant's modest capital expenditures for the last-12-months to September period - about $100 million. Reliant does not pay a common stock dividend and has no significant maturities until December 2009.

Moody's estimated that Reliant has about $1 billion of available liquidity, which includes access to its revolver and about $50 million of cash on the balance sheet and assumptions for the receipt of asset sale proceeds in 2005.

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