Posted on 04/01/2003 4:15:14 AM PST by MeneMeneTekelUpharsin
'Last piece of puzzle' secures finance package
Reliant Resources and its bankers agreed Monday to a $6.2 billion financing package that should put to rest any bankruptcy fears surrounding the Houston power company. Mark Jacobs, Reliant's chief financial officer, called the package -- the vast majority which doesn't come due until 2007 -- a landmark transaction. "This is really the last step that we needed to take here to stabilize our capital structure," Jacobs said in an interview. "This is really the last piece of the puzzle." The company announced the package around 10 p.m. Monday.
Last year, the main power provider in Houston completed a separate refinancing deal and in February reached an agreement to sell off its European business. The $6.2 billion deal followed a Friday deadline, that came and went, for Reliant to pay off a $2.9 billion loan slated to mature that day. The bank talks continued through the weekend and into Monday. The deal had to be approved by 24 lenders. "It was an extraordinarily complex transaction," Jacobs noted. The package replaces $5.9 billion in debt -- including the $2.9 billion loan -- that would have come due for Reliant this year and next. It also includes a new $300 million credit line. Reliant no longer has any significant debt due in the next couple of years. The new financing includes:
· A $2.1 billion revolving credit line maturing in 2007.
· $3.8 billion in loans maturing in 2007.
· The $300 million credit line maturing next year.
The first two carry interest rates of the so-called LIBOR benchmark plus 4 percent, while the new credit line runs at LIBOR plus 5.5 percent. LIBOR, the British equivalent of the prime rate for business borrowers, is about 1.4 percent now. The interest rates are higher than what Reliant previously had. But Jacobs said considering the climate in the industry, the company feels good about them. Other features of the deal:
· There are no restrictions on Reliant's ability to exercise an option it has to buy power plants in Texas from Houston-based CenterPoint Energy.
· Reliant isn't required to make any early payments until May 2006.
· The banks will be issued upfront warrants, securities giving them the right to purchase 2.5 percent of Reliant's fully diluted shares.
· The financing is secured by "substantially all" the available assets Reliant had to pledge, Jacobs said.
If Reliant hadn't come to terms with its bankers, it might have had to file for bankruptcy protection. Wall Street widely expected Reliant to reach a deal, in part because of the steady revenue stream its retail consumer electricity business provides. It also sells power from its network of plants on deregulated wholesale markets. But questions were raised last week after the staff of the Federal Energy Regulatory Commission said it found apparent evidence that Reliant was involved in electricity price manipulation in the West. The FERC has asked Reliant to demonstrate why its authority to sell power on unregulated wholesale markets shouldn't be revoked. Reliant says it complied with "applicable rules and regulations." Wall Street analysts said the FERC issue could derail or delay Reliant's bank talks. But Jacobs said the issue had "no material impact" on the talks. Reliant executives are slated to talk to investors and analysts about this deal this morning on a conference call.
Lucky dog. I was too scared to buy it with the problems they were having. Other IPPs ought to climb today as well as several are also awaiting refinancing and do not have the same problems as RRI. Bound to be an interesting day.
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.