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Rating Action:

Moody's Affirms NRG Energy's Ba3 CFR; Outlook Stable

21 Mar 2016

Approximately $9 billion of debt affected

New York, March 21, 2016 -- Moody's Investors Service, ("Moody's") today affirmed the Ba3 Corporate Family Rating (CFR) and Ba3-PD Probability of Default Rating, along with the Baa3 rating on NRG Energy, Inc.'s (NRG) senior secured revolver and term loans and B1 rating on the unsecured notes. The outlook is stable. The rating affirmation follows our assessment of the US merchant power sector in the wake of a sustained period of low commodity prices, including natural gas and electricity.

Outlook Actions:

..Issuer: NRG Energy, Inc.

....Outlook, Remains Stable

Affirmations:

..Issuer: Chautauqua (Cnty of) NY, Ind. Dev. Agency

....Senior Secured Revenue Bonds, Affirmed Baa3

..Issuer: Delaware Economic Development Authority

....Senior Secured Revenue Bonds, Affirmed Baa3

..Issuer: Fort Bend County Industrial Development Corp

....Senior Secured Revenue Bonds, Affirmed Baa3

..Issuer: NRG Energy, Inc.

.... Probability of Default Rating, Affirmed Ba3-PD

.... Speculative Grade Liquidity Rating, Affirmed SGL-2

.... Corporate Family Rating (Local Currency), Affirmed Ba3

....Senior Secured Bank Credit Facility, Affirmed Baa3

....Senior Unsecured Regular Bond/Debenture, Affirmed B1

..Issuer: Sussex (County of) DE

....Senior Secured Revenue Bonds, Affirmed Baa3

..Issuer: Texas City Industrial Development Corp., TX

....Senior Secured Revenue Bonds, Affirmed Baa3

RATINGS RATIONALE

"NRG Energy's financial profile will remain adequate for its existing ratings over the next few years, and we calculate a ratio of cash flow, adjusted for maintenance capital and nuclear fuel, to debt of approximately 7%", said Toby Shea, Vice President -- Senior Credit Officer. "NRG corporate finance policies will also take credit friendly steps, including a reduction in both debt outstanding and common shareholder dividends."

NRG's Ba3 corporate family rating (CFR) primarily reflects its position as the largest independent power producer in the US in terms of generating capacity and a retail operation in Texas that provides sizeable, stable cash flow. The rating also incorporates the company's significant debt leverage and the current weak market conditions for U.S. merchant companies, for which we do not foresee a meaningful recovery in the next few years.

Natural gas prices in the United States are at historic lows; after declining sharply to the $3/MMBtu range at Henry Hub near the end of 2014, the downward slide continued with current pricing under $2/MMBtu in most markets. Forward curves remain upward sloping, with prices returning above $2/MMBtu in 2016; however, most indications remain below $3/MMBtu for the foreseeable future. Moody's is currently assuming average pricing of $2.25/MMBtu in 2016 and $2.50 MMBtu in 2017. While low natural gas prices do not necessarily translate directly into lower power prices, particularly in the PJM Interconnection (PJM, Aa3 stable) where there are delivery constraints and a meaningful amount of power is still produced by coal-fired generating plants, they do tend to move together. That said, prices for wholesale power in ERCOT, where most of NRG's assets are located, are also at or near historic lows.

The company's cash flow to debt leverage, as primarily measured by cash flows from operations (CFO) pre-working capital over debt, has been in the high single digits and rose to 11% in 2015, which is below the benchmark for NRG's rating but is acceptable given the size and diversity of its asset base as well as the strong cash flow generated from its retail operation in Texas. This ratio is calculated by deconsolidating its non-recourse subsidiary GenOn Energy (Caa2 negative) and proportionately consolidating NRG Yield (Ba2 stable). NRG is also committed to reduce debt by $1 billion in 2016 and potential more in 2017. NRG's corporate family rating of Ba3 is rated five notches higher than the corporate family rating for its GenOn (Caa2 CFR, negative) subsidiary, reflecting the fact that GenOn has a less favorable stand-alone credit profile with limited NRG support.

Liquidity Profile

NRG's speculative grade liquidity rating is SGL-2. The company continues to possess good liquidity with $742 million of unrestricted cash on hand and $1.373 billion of unused capacity at yearend 2015 on its revolving credit facility. NRG's $2.5 billion revolving credit facility is secured by first-priority perfected security interests in substantially all of the property and assets owned or acquired by NRG and its subsidiaries, other than certain limited exceptions, including assets under GenOn and other non-recourse financing subsidiaries. NRG is well within compliance of its covenants under the revolving credit agreement, which includes 6x Debt/EBITDA and 1.75x interest coverage, excluding GenOn debt.

Excluding non-recourse maturities, NRG does not have any major debt maturities until 2018. NRG's $2.5 billion revolving credit facility also expires in 2018. The company expects to generate about $1.1 billion of free cash flow before growth capital expenditures for 2016. Committed capital allocations which for 2016 includes $309 million of growth capital expenditures, $75 million common stock dividends and $20 million of debt amortization, is significant but should be manageable.

Rating Outlook

NRG's stable outlook reflects the stability of its cash flows provided by its retail operation and its diverse asset base. We view the company's strategic decision to limit investments in residential distributed generation, sell assets and reduce debt as stabilizing factors for the company.

What Could Change the Rating - Up

A fundamental improvement in the merchant power market or a moderation in NRG's current debt leverage to facilitate a 12% or above CFO-pre-working-capital/debt ratio on a sustained basis could result in upward rating pressure.

What Could Change the Rating - Down

We may take a negative rating action should cash flow leverage deteriorate significantly to 7% CFO-pre-working-capital to debt. We could take a negative rating action should the stability of the retail cash flows come under pressure. The rating could also come under pressure should NRG change its financial policy regarding the treatment of GenOn as a non-recourse entity.

The principal methodology used in these ratings was Unregulated Utilities and Unregulated Power Companies published in October 2014. Please see the Ratings Methodologies page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Toby Shea
VP - Senior Credit Officer
Infrastructure Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

William L. Hess
MD - Utilities
Infrastructure Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's Affirms NRG Energy's Ba3 CFR; Outlook Stable
No Related Data.
© 2023 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

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