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Derivatives

Energy Concern Contemplates First I-Rate Swap

Houston-based Reliant Resources, an independent power producer that was spun off from Reliant Energy earlier this year, is considering entering into its first interest-rate swap on the back of a planned USD1 billion fixed-coupon bond offering early next year. Andy Weaver, assistant treasurer, said it may elect to convert the entire proceeds via a swap. "We have not done any interest rate hedging yet, so I can't say what exact amount we would look to hedge," he noted.

Reliant Resources wants to pay floating and receive a fixed rate equal to the coupon on the bond in the swap, Weaver explained. Reliant has relationships with a number of investment banks, including Bank of America, but has yet to decide on a counterparty for the swap. "We would look to our relationship banks first as possible counterparties," Weaver said.

The company will use the proceeds from the bond offering to fund its proposed acquisition of Orion Power, which is expected to close within the next three months. Reliant Resources is rated BBB+ by Standard & Poor's and Fitch and Baa3 by Moody's Investors Service. Although it is looking to make its interest-rate derivatives debut, Reliant Resources has entered foreign exchange swaps to hedge currency exposure from its operations in the Netherlands.

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