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Fitch expects to rate Reliant Energy loans BB-
Fitch Ratings said it expects to assign BB- ratings with recover ratings of RR2 to Reliant Energy, Inc.'s $400 million secured term loan due 2010, $700 million secured revolving credit facility due 2009 and $300 million pre-funded letter-of-credit facility due 2010.
The agency revised the outlook on the company's B issuer default rating, BB-/RR2 senior secured debt and B/RR4 senior subordinated convertible notes to stable from negative.
The revised outlook reflects the implementation of a credit enhancement (credit sleeve) transaction to support the company's retail energy business in Electric Reliability Council of Texas, the agency said. Pursuant to the credit sleeve, Merrill Lynch will guarantee the retail energy business' supply transactions and some of its power sales agreements and will provide a $300 million working capital facility to support the retail operations, which will be secured by the assets and stock of those operations.
In conjunction with the credit sleeve, Reliant Energy is reducing the size of its secured revolving credit facility to $700 million from $1.7 billion, reducing the size of its secured term loan to $400 million from $531 million and entering into a new $300 million prefunded secured letter-of credit facility.
Fitch said it views the implementation of the credit sleeve as a significant improvement to the company's credit profile, as it will significantly reduce the company's liquidity needs and return cash, which can be deployed to debt reduction.
Offsetting in part this benefit is the amendment of the security package for the company's secured debtholders, who have released the lien on the assets and equity of the retail operations, according to the agency.
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