Energy names had a stronger tone last week after Reliant Energy announced it is selling 770 MW of power generation assets located in upstate New York for $900 million in cash to Brascan Corp. Reliant's term loan was seen trading in the 98 1/4-99 range while its revolver was changing hands in the 94 1/2-95 1/2 context, said a banker. Reliant's term loan was quoted in the 97-98 context two weeks ago. As soon as the paper came out there were a number of trades on the break, a trader said.
"The power plants were associated with losses of $536 million last year," the banker said. "Brascan bought them for $900 million and they will have to spend a lot of money on capex. The fact that Reliant doesn't have to make those expenses is a relief," he added. Reliant's decision to keep its Astoria assets--the company's "golden nuggets"-- is also seen as positive, a trader said. Reliant could pay down debt by selling these assets or by selling some equity, he noted. Reliant said in a statement that proceeds from the sale will be directed to paying down bank debt at the Orion Power New York and Orion Power Midwest subsidiaries. "It was a fair price, very consistent with our strategy. It's a good deal for everybody," said a Reliant spokesman.
A Brascan spokeswoman responded, "We believe that the [capital expenditures] are modest. This particular group of assets favors our strategy of expanding into the Northeast." She explained that hydroelectric power generation has predictable and low capex requirements. She declined comment on whether or not Brascan attempted to acquire the Astoria assets.
The banker also said up to $100 million of Mirant Corp's paper was moving with the '03 and '04 loans trading in the 52 1/2-53 1/2 context. This is up from the low 50s. "It may have moved up a little bit on the Reliant asset sale," he commented. Calls to a Mirant spokesman were not returned.