RRI Energy focused on risk-management, planning to hold majority of cash

By Jennifer Lanning Drey

Portland, Ore., May 11 - RRI Energy, Inc., formerly Reliant Energy Inc., has made managing the risks associated with the current market environment its top priority upon the completion of the sale of its retail business, Mark Jacobs, chief executive officer of RRI, said Monday during the company's first-quarter earnings conference call.

"Our capital structure and liquidity position are important components of our risk management strategy," Jacobs said.

The majority of RRI's $1.6 billion of pro forma cash will be held as part of the company's contingency plan to ensure it can withstand a wide range of potential economic scenarios, he said.

At the same time, however, the company's second priority will be to evaluate opportunities to selectively deploy some of its capital toward value-creating opportunities.

"I suspect any actions we take in the near term will be relatively close to home such as investments in our generation assets or evaluating our capital structure rather than pursuing acquisitions," Jacobs noted.

RRI's first-quarter performance was characterized by weak commodity prices and tight gas and coal spreads driven by the tough economic climate.

The company posted a loss from continuing operations before income taxes for the first quarter of $140 million, compared to net income of $24 million in the comparable period of 2008.

RRI's first-quarter adjusted EBITDA was $19 million, compared to adjusted EBITDA of $157 million for the first quarter of 2008. Free cash flow provided by continuing operations was $46 million for the first quarter, down from $151 million for the same period in 2008.

Sale improves liquidity

On a pro forma basis, RRI has total liquidity of $2.1 billion and total debt of $3.1 billion, Rick Dobson, the company's chief financial officer, reported during the call.

"This debt level and liquidity profile leave us in good shape to meet our modest near-term maturity profile and the potential for prolonged tough economic times," Dobson said.

Specifically, the company has ample cash to meet its $400 million May 2010 debt maturity and to weather scenarios in which gas and coal spreads get even tighter, he said.

RRI also believes it will be in a solid position to fund potential future environmental capital expenditures with operating cash flow, he said.

Other efforts to protect liquidity include the additional of some energy hedges in 2010 and a redoubled effort to streamline the company's cost structure, Jacobs said.

Reliant is Houston-based provider of electricity and energy services.

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