Fitch Upgrades NRG Energy's Senior Notes to 'B+', Affirms IDR at 'B'.NEW YORK New York, state, United States New York, Middle Atlantic state of the United States. It is bordered by Vermont, Massachusetts, Connecticut, and the Atlantic Ocean (E), New Jersey and Pennsylvania (S), Lakes Erie and Ontario and the Canadian province of -- Fitch Ratings Fitch Ratings An international rating agency for financial institutions, insurance companies, and corporate, sovereign, and municipal debt. Fitch Ratings has headquarters in New York and London and is wholly owned by FIMALAC of Paris. has upgraded the rating of NRG NRG Energy NRG NRG Energy, Inc. NRG Natural Resources Group NRG New Radiancy Group NRG Network Referral Group NRG Network Resource Grapher NRG Numerics Rapporteur Group NRG Neuroprosthetics Research Group NRG notional requirements generator Energy's (NRG) senior notes to 'B+' from 'B' and affirmed the company's issuer default rating (IDR IDR In currencies, this is the abbreviation for the Indonesian Rupiah. Notes: The currency market, also known as the Foreign Exchange market, is the largest financial market in the world, with a daily average volume of over US $1 trillion. ) and all other instrument ratings. The Rating Outlook is Stable. A complete summary of affected ratings is listed below. The upgrade of the senior notes is in no way connected to the recently announced share repurchase Share Repurchase A program by which a company buys back its own shares from the marketplace, reducing the number of outstanding shares. This is usually an indication that the company's management thinks the shares are undervalued. . Rather, the upgrade of the rating of the company's senior notes reflects increased expected recovery for senior notes holder should the company default on its debt. The expectation of improved recoveries is driven primarily by Fitch's expectation of continued high forward natural gas prices. While near term gas prices have declined significantly from the very high prices prevailing following Hurricane Katrina, the prices several years out have increased from those prevailing earlier this year. Forward gas prices are key inputs into Fitch's wholesale power forecast which is used to derive valuations for the recovery rating process. Accordingly, the expectation of higher gas prices in the future have resulted in improved recovery prospects for the senior notes. On Aug. 1, 2006, NRG announced a share repurchase program pursuant to which the company expects to repurchase up to $750 million of the company's stock. Phase I of the program entails the repurchase of $500 million of stock. The repurchase will be effected through two newly formed subsidiaries. NRG will contribute $166 million into the new subsidiaries and they will raise non-recourse debt Non-Recourse Debt A loan that is secured by some sort of collateral, usually property. The issuer can seize the collateral if the borrower defaults. Notes: These types of projects are characterized by high capital expenditures, long loan periods, and uncertain revenue and preferred stock Stock shares that have preferential rights to dividends or to amounts distributable on liquidation, or to both, ahead of common shareholders. Preferred stock is given preference over common stock. Holders of preferred stock receive dividends at a fixed annual rate. totaling $334 million. The total proceeds of $500 million will be used to execute the stock repurchase Stock repurchase A firm's repurchase of outstanding shares of its common stock. . Given that the initial $166 million contribution to the new subsidiaries is a permitted payment pursuant to the restricted payments provisions under the company's secured credit facility and unsecured notes, and given the non-recourse nature of the newly raised financing, Fitch views the proposed repurchase to have no impact of the company's credit ratings. Fitch stresses that NRG has the option, but no obligation to support in any way the debt and preferred stock incurred by the newly formed subsidiaries. Should the company have the capacity under its restricted payments tests and the prevailing stock price be attractive, NRG can make the necessary contributions to retire the outside financing. Should this not be the case, the shares held by the subsidiaries will be liquidated to retire the debt and preferred stock. Fitch stresses that it does not view the new subsidiary structure as a credit enhancing structure. Rather the timing of the upgrade of the senior notes is coincidental to the announcement of the repurchase and reflects only the periodic review Fitch conducts on all the credits followed by Fitch. NRG owns and operates a diverse portfolio of power-generating facilities, primarily in Texas and the Northeast, South Central and Western regions of the United States. Its operations include baseload, intermediate, peaking, and cogeneration facilities, thermal energy production and energy resource recovery facilities. NRG also has ownership interests in generating facilities in Australia and Germany. Fitch upgrades the following rating with a Stable Outlook: --Senior notes to 'B+'/'RR3' from 'B'/'RR4'. Fitch affirms the following ratings with a Stable Outlook: --Senior secured term loan B at 'BB'/'RR1'; --Senior secured revolving credit Revolving Credit A line of credit where the customer pays a commitment fee and is then allowed to use the funds when they are needed. It is usually used for operating purposes, fluctuating each month depending on the customers current cash flow needs. facility at 'BB'/'RR1'; --Convertible preferred stock at 'CCC+'/'RR6'; --Issuer default rating at 'B'. Fitch's rating definitions and the terms of use Terms of Use are rules set up by the owner of an intellectual property or service to govern how they may be legally used. In many cases, terms of service are used as a contractual agreement between a company and users of a service they provide. of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures Policies and Procedures are a set of documents that describe an organization's policies for operation and the procedures necessary to fulfill the policies. They are often initiated because of some external requirement, such as environmental compliance or other governmental are also available from the 'Code of Conduct' section of this site. |
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