Asgns Reliant Energy Cap -Europe- A- Issuer Cr Rtg.

Business Editors

LONDON--(BUSINESS WIRE)--Feb. 1, 2000

Standard &Poor's today assigned an issuer credit rating of single-'A'-minus to the intermediate holding company, Reliant Energy Capital (Europe), Inc. (RECE) of Dutch electricity generator, NV UNA (UNA: single-'A'-minus/Negative/--). The outlook is negative.

The rating reflects the solid credit quality of RECE's underlying asset, UNA, whose acquisition by Reliant Energy Inc. (Reliant: single-'A'-minus/Negative/'A-2') is being completed in March 2000. The rating is also supported by the strategic importance of UNA to its ultimate parent, Reliant, which may use UNA as its vehicle for European expansion. Reliant's issuer credit rating is currently stretched at the single-'A'-minus level, and could be lowered one notch to triple-'B'-plus if Reliant's management does not bolster the consolidated financial profile of the group.

RECE was set up by Reliant to finance the acquisition and indirectly hold the shares of UNA. For tax reasons, UNA is not expected to make dividend distributions to RECE to service its debt. Reliant intends to make periodic payments to RECE (in return for subordinated loan notes), which will be sufficient to service the anticipated RECE borrowing. The cash flow from UNA is expected to be more than sufficient to service any RECE borrowing, as well as UNA's existing debt.

The rating on RECE reflects:

-- Strong credit quality of the underlying asset, UNA; -- Strong incentives for the ultimate parent, Reliant, to ensure

that any RECE borrowing is serviced as it cross defaults to its

own corporate facilities; and

-- To date UNA, through RECE, is Reliant's sole significant

investment in Europe and is to be used as its springboard for

further regional expansion.

Factors constraining the rating on RECE are:

-- Overcapacity in the Dutch generation market. -- Competitive pressure from a rapidly consolidating market.

Following its acquisition by Reliant in October 1999, UNA's ratings were lowered to single-'A'-minus from double-'A' to equal those of Reliant. Independent of this acquisition, UNA's ratings were coming under increasing scrutiny as a result of market pressures and consolidation, coupled with falling electricity prices in the Netherlands, because of a power surplus.

With installed capacity of 3,470MW, UNA is the third-largest of the Netherlands' four public supply generators, supplying almost one-quarter of domestic public consumption. More than 95% of sales are derived from electricity-the remainder coming from heat and steam.

The Dutch electricity market is being deregulated, and from 2001, generators will switch to supplying competitive markets from captive ones. Given market overcapacity, and the limited market power of any one player, deregulation will expose UNA and the other Dutch generators to price and volume risks, as well as reallocating risks (such as market, fuel, and technology risks) to the generators from end users.

UNA benefits from low operating risks and a competitive position. Its young portfolio includes a state-of-the-art plant, with favorable environmental characteristics and very high fuel efficiencies, offsetting its higher capital costs. Other competitive advantages include its operational flexibility and historically aggressive depreciation, yielding a low all-in generation cost.

UNA's leverage has improved rapidly over the past few years-largely reflecting robust cash generation and sharply reduced investment. UNA's funds from operations to interest coverage and debt to capital were five times (x) and 57%, respectively, at year-end 1998 (audited 1999 figures are not yet available). However, with borrowing at the RECE level, the servicing may come from UNA's cash flows and debt protection measures will fall. Combined RECE/UNA funds from operations interest coverage levels are expected to average about 3.5x in the foreseeable future, as the benefits of cost-cutting are felt.

In accordance with Standard &Poor's rating criteria, any borrowing at RECE would be notched down from its issuer credit rating to indicate structural subordination to the financial obligations of the operating company in the event of default.

OUTLOOK: NEGATIVE

The outlook on RECE reflects that of Reliant, where management's key challenge will be to improve the group's financial strength, while exploiting growth opportunities. Unwillingness or inability to make disposals and strengthen the financial profile is likely to result in a downgrade in the short term, Standard &Poor's said.---CreditWire