NRG Energy's severely depressed bank debt regained more than five points last week after the independent power producer's parent, Xcel Energy, announced an agreement with NRG creditors that would give NRG a larger-than-expected payout. NRG has been working toward a restructuring plan since August, but the latest development will allow Xcel and NRG to sever ties. The settlement, which is $452 million more than expected, comes with the release of all NRG claims against Xcel and paves the way for NRG to seek a prepackaged bankruptcy plan.
Traders said a piece of the company's $1 billion, 364-day revolver traded at 36, up from the 30 level. A piece of the NRG Finance Company's $2 billion credit facility was also said to have traded in the high 20s. Some dealers questioned whether or not the finance company trade actually occurred, suggesting that those looking to sell the loan were trying to talk the price up. A seller with a $27 million piece of the loan is believed to be waiting on the sidelines. A large piece of the finance company's facility was also said to have traded out of a Japanese bank in the 20 range earlier this month.
ABN Amro leads the 364-day revolver and has recently accelerated the deal, rendering the debt immediately due. In a company statement, NRG said it believed that the bank accelerated the payments to preserve certain rights under the credit agreement. Calls to ABN officials were not returned by press time and a spokesman declined to comment. NRG experienced liquidity constraints in 2002, prompting questions about its ability to continue as a going concern. In August, NRG was able to extend until September a deadline requiring the posting of cash collateral of about $1 billion. NRG was able to extend the collateral call once again until November as the company drew up a reorganization plan. During that time period, however, NRG missed a number of interest payments and violated covenants under its bank agreements throwing the company into default under those agreements. A spokeswoman for the company said NRG realizes that a prepackaged bankruptcy plan may be the final vehicle for reorganization, but it is still evaluating scenarios at this time. She added that it is too soon to tell whether or when NRG would ultimately end up filing for bankruptcy.
In November 2002, five former NRG executives filed an involuntary Chapter 11 petition. The company has reached a settlement with these executives and a hearing to dismiss the petition is scheduled for April 10. The company is continuing to develop a debt-restructuring plan outside of court that will return NRG to sound financial health, said Scott Davido, NRG general counsel, in a written statement.