How Good is the NRG-Reliant Deal? (NRG, RRI, EXC)

The offer from NRG Energy, Inc. (NYSE:NRG) to buy the retail business of Reliant Energy Inc. (NYSE:RRI) for $287.5 million has now drawn some attention from Fitch Ratings. As one might expect, the benefits to Reliant outweigh the benefits to NRG, at least that’s what Fitch thinks.

The primary benefit to Reliant is the loss of the collateral requirements that come with operating a retail business. This loss resolves a pending lawsuit with Merrill Lynch related to the credit sleeve Reliant held to manage its needed collateral in the retail business. Another bit of upside for Reliant comes in the form of a break-up fee due from NRG in the event the sale does not close.

That’s where Exelon Corporation (NYSE:EXC) comes in with its standing $6.2 billion offer for NRG. Fitch is maintaining its ‘Rating Watch Evolving’ on NRG, saying, “While ultimately an acquisition of NRG by the higher-rated Exelon would be a positive for NRG’s credit ratings, alternate scenarios including other corporate transactions could have neutral or deleterious credit implications.” That has the Delphic ring of something Alan Greenspan might have said. What “other corporate transactions” is Fitch referring to? Is NRG’s offer for Reliant such a transaction, and, if so, is it just neutral to NRG’s credit rating or is it “deleterious?” Isn’t there anything positive that NRG can do?

Maybe the Fitch announcements will focus NRG’s attention on the Exelon offer, and encourage the company to engage with Exelon on conducting due diligence for Exelon’s proposed buyout. That seems to be what Fitch is recommending, in its roundabout way.

Paul Ausick
March 4, 2009