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Reliant Taps Trio For Refi

17 Nov 2006

Reliant Energy hit the market last Monday looking for a new $1.4 billion credit to refinance existing debt.

Reliant Energy hit the market last Monday looking for a new $1.4 billion credit to refinance existing debt. Led by Deutsche Bank, Bank of America and JPMorgan, the deal comprises a $700 million revolver, a $300 million pre-funded letter of credit and a $400 million term loan "B." All tranches are priced at LIBOR plus 2 1/2%, according to a banker.

"I think it will probably go pretty well," said one investor. The current deal is priced at LIBOR plus 2 3/8% and the new deal is priced at LIBOR plus 2 1/2%, he said. "I think it will be fairly well received, [however] that is being said without looking at the structure."

The new credit will be used to refinance an existing $1.7 billion revolver, $531 million of an existing term loan and $450 million of an existing receivables securitization facility, according to a banker. Reliant quashed rumors of a spin-off during a Nov. 9 quarterly conference call with investors, according to a spokeswoman. The company had been looking at alternatives to create more value for shareholders and came to the conclusion that a spinoff would not create the value it was looking for, she said.

The Houston-based provider of electricity and energy services entered into a new credit-enhanced retail structure with Merrill Lynch in late September. The new structure includes a credit support agreement where Merrill Lynch guarantees the supply purchases and related transactions of Reliant's retail business. As a consequence, Reliant will no longer be required to post collateral for its retail supply purchases, reducing liquidity requirements and significantly improving the flexibility of its retail business. Merrill Lynch also provided a credit facility to finance some of the working capital needs of the retail business as part of the new structure. The size of the facility could not be determined. Calls to a Merrill banker were not returned.

The company began negotiations to enter into the new structure in late July with the solicitation to buy back $2.35 billion worth of bonds, including its 9.25% '10, 9.5% '13 and 6.75% '14 senior secured notes and its Pennsylvania Economic Development Financing Authority bonds. The solicitation was originally set to expire Aug. 3 but was extended 12 times before it was finally completed Nov. 14. "This is a very unique transaction and that's why it took longer than we originally expected to communicate with bond holders about the benefit" of the new structure and address their concerns, a company spokeswoman said. Essentially the covenants that were part of the original bonds required Reliant to seek approval from the holders before instituting the new structure, she said. Calls to Mark Jacobs, cfo, were not returned.

17 Nov 2006