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NRG Debt Rides Trading Wave

A whopping $1 billion of NRG Energy's new debt has traded since the deal broke in the secondary market Jan. 26.

A whopping $1 billion of NRG Energy's new debt has traded since the deal broke in the secondary market Jan. 26. The $3.575 billion term loan "B" broke at 101 1/ 4 and traded up to 101 1/2 as investors tried to get their hands on more of the credit, which was two times oversubscribed. One trader said he had a very busy week trading the massive $4.5 billion credit, with the sheer size of the loan accounting for the increased activity. Morgan Stanley and Citigroup lead the deal, which also consists of a $1 billion revolver and a $1 billion letter of credit that backs the acquisition of Texas Genco. All tranches are priced at LIBOR plus 2%.

The term loan was increased from $3.2 billion and was originally priced at LIBOR plus 2 1/4%. A spokeswoman at NRG said the loan was increased to take out the sponsor preferred stock, which would have had a very high coupon rate and could have restricted the company from paying dividends. Pricing on the term loan was decreased because of high demand.

Moody's Investors Service upgraded NRG's corporate family rating to Ba3 from B1 and assigned a Ba2 senior secured rating to the term loan. The ratings reflect the agency's expectation of strong financial performance at NRG following the merger, which closed last week. In a report, Moody's writes that over the next three years, it expects between 65-80% of the company's consolidated revenues to be derived from contractual or hedged arrangements, providing it with predictable cash flows. It adds that the new credit facility is well collateralized. Creditors will be secured by a first lien on all unencumbered subsidiary assets through upstream guarantees.

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