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12 Apr 2010
Approximately $7.0 billion of debt affected
New York, April 12, 2010 -- Moody's Investors Service affirmed the ratings and stable rating outlook
for Mirant Corporation (Mirant: B1 Corporate Family Rating) and
its subsidiaries (listed below) as well as the ratings and stable rating
outlook for RRI Energy, Inc. (RRI: B1 Corporate Family
Rating) and its subsidiaries (listed below) following yesterday's announcement
that the companies agreed to combine in a stock-for-stock
GenOn Energy (GenOn), a newly formed entity, will be the surviving
parent company upon consummation of the transaction. The ratings
for GenOn will be determined based on the facts and circumstances of the
pro-forma combined organization.
"The affirmation of Mirant and RRI's ratings considers the complementary
operations and similar credit profiles of the companies and the use of
stock as the currency for the proposed merger" said Moody's Vice President
Scott Solomon. "The rating affirmation also considers the expected
operating synergies and the strong liquidity profiles for the combined
entity", added Solomon.
Moody's believes the primary execution risk associated with closing
the proposed transaction is the need to refinance approximately $1.8
billion of existing debt and to replace each company's revolving
credit facility in a new holding company facility.
GenOn is expected to have roughly 25 GW's of generation capacity,
over $4.0 billion in revenue, $1.0 billion
in cash flow and $7.0 billion in debt. Historically,
GenOn would have generated a ratio of cash flow before working capital
adjustments (CFO-pre WC) to debt in the mid-teen's
(15% - 17%) and a ratio of free cash flow to debt
in the high single-digits.
Based on expected near-term market conditions, Moody's
forecasts GenOn will produce a ratio of cash flow to debt of around 10-15%;
cash flow coverage of interest expense of approximately 2 to 3 times and
a ratio of free cash flow to debt in the mid to high single digits.
These pro-forma credit metrics comfortably position the merged
entity in the B1 rating category. However, specific details
concerning the ultimate capital structure for GenOn is uncertain.
From a liquidity perspective, the speculative grade liquidity ratings
(SGL's) for both RRI (SGL-1) and Mirant (SGL-1) are
also affirmed. Both companies maintain large cash balances and
have largely undrawn secured credit facilities. RRI and Mirant
are expected to generate modest free cash flows, taking into consideration
the projected liquidity sources and cash needs for both companies.
Initially, GenOn Energy should have approximately $2-3
billion in cash and would be expected to refinance roughly $1.8
billion of debt and credit facilities due to certain indenture provisions.
The interest expense on this new debt is likely to have a higher weighted
average cost than the existing weighted average interest rate on the debt.
"The combined company will continue to face longer-term fundamental
challenges" added Moody's Senior Credit Officer Jim Hempstead.
"This includes reduced electric demand, low commodity market
prices and increasingly stringent environmental mandates. Maintaining
a sizeable cash balance will be critical for ratings stability,"
In addition to shareholder approval, the merger will require the
approval of Federal Energy Regulatory Commission and the New York State
Public Service Commission. Closing is also subject to the refinancing
of a portion of each company's existing debt. Rating refinements
of existing Mirant and RRI subsidiary debt may follow as the companies
provide more transparency around legal structures and refinancings.
All ratings at the following listed entities and their subsidiaries are
Mirant Corp. (B1 Corporate Family Rating)
Mirant Mid-Atlantic, LLC (Ba1 pass through trust certificates)
Mirant North America, LLC (Ba2 senior secured and B1 senior unsecured)
Mirant Americas Generation, LLC (MAG: B3 senior unsecured)
RRI Energy, Inc. (B1 Corporate Family Rating)
Reliant Energy Mid-Atlantic Power Holdings, LLC (Ba1 pass
through trust certificates)
Orion Power Holdings, Inc. (Ba3 senior unsecured)
The last rating action taken on Mirant occurred on October 8, 2009
when we affirmed the ratings. The last rating action taken on RRI
occurred on June 3, 2009 when we downgraded RRI Energy's Corporate
Family Rating to B1 from Ba3.
The principal methodologies used in rating Mirant and RRI was the Rating
Methodology: Unregulated Utilities and Power Companies, published
in August 2009, and available on www.moodys.com in
the Rating Methodologies sub-directory under the Research &
Ratings tab. Other methodologies and factors that may have been
considered in the process of rating this issuer can also be found in the
Rating Methodologies sub-directory on Moody's website.
Mirant Corporation, headquartered in Atlanta, Georgia,
is an independent power producer that owns or leases a portfolio of electricity
generating facilities totaling approximately 10,300 megawatts.
RRI Energy, headquartered in Houston, Texas, is an independent
power producer that owns or leases a portfolio of electricity generating
facilities totaling approximately 14,000 megawatts.
Senior Vice President
Infrastructure Finance Group
Moody's Investors Service
Moody's affirms Mirant and RRI Energy Corporate Family Ratings
Vice President - Senior Analyst
Infrastructure Finance Group
Moody's Investors Service
No Related Data.
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