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Rating Action:

Moody's rates GenOn Energy's credit facilities and senior unsecured debt

08 Sep 2010

Approximately $3.0 billion of credit facilities and debt securities rated

New York, September 08, 2010 -- Moody's Investors Service assigned a (P) B2 rating to GenOn Energy's senior secured $1.0 billion revolving credit facility and $500 million term facility. These facilities are being issued directly by the parent holding company, which today is known as RRI Energy (RRI: B2 CFR, stable outlook). These facilities are expected to close with the final completion of the proposed merger transaction between RRI and Mirant Corporation (Mirant: B1 CFR, stable outlook).

In addition, Moody's assigned a B3 rating to approximately $1.4 billion of new senior unsecured notes to be issued by a temporary subsidiary of Mirant (GenOn Escrow). Assuming the completion of the merger, it is our understanding that GenOn Escrow will be merged into the ultimate parent holding company, GenOn Energy (aka RRI) and the new senior unsecured debt securities will rank pari-passu with the existing RRI senior unsecured notes.

RATINGS RATIONALE

We understand that the new senior secured credit facilities to be issued at GenOn Energy will benefit from certain upstream payment guarantees provided by certain assets and subsidiaries of RRI and Mirant, but that certain Mirant upstream guarantees could be impacted by indenture limitations currently existing within the Mirant stand-alone capital structure

For now, separate Corporate Family Rating's (CFR) will be maintained for both RRI and Mirant. Assuming completion of the merger transaction, currently expected around year-end 2010, Moody's will assign a new CFR to the pro-forma combined GenOn Energy and withdraw the CFR's for RRI and Mirant. Subject to the closing of the transaction, GenOn is expected to be assigned a B2 CFR.

Assuming a B2 CFR is assigned to the pro-forma GenOn, and based on our current understanding of the company's financing plan and resulting capital structure, we believe it is unlikely that the ratings for Mirant and RRI's various existing debt instruments would change at merger completion. Current ratings include the B3 ratings for Mirant Americas Generation, LLC's (MAG) senior unsecured notes and RRI's existing senior unsecured notes, as well as the Ba1 ratings for senior secured lease obligations bonds of both Mirant Mid-Atlantic LLC (MIRMA) and Reliant Energy Mid-Atlantic Power Holdings (REMA). The Ba1 ratings for MIRMA and REMA are one notch higher than the LGD-template implied rating and reflects favorable structural elements, such as a restricted payments test, which in Moody's view improves recovery prospects for these bonds in a default scenario.

GenOn's pro-forma credit profile is benefited by the increased scale and diversity of approximately 25 GW's of non-regulated generating assets and the ability to capture operating cost synergies that are not readily available to either company on a stand-alone basis. The rating also incorporates a view that the current commodity market environment, which can be characterized as having relatively low prices, will continue to pressure the combined financial profile of GenOn for the next few years. As a result, we estimate a pro-forma combined ratio of cash flow to debt in the high single digits. This ratio is more appropriate for the B2 CFR ratings category.

The outlook for both Mirant and RRI is stable, reflecting each company's financial profile, where Mirant is viewed as slightly stronger than RRI, in part due to its hedging strategies. The stable outlooks also consider the low commodity market environment, which is expected to remain for a sustained period of time, and increasingly stringent environmental mandates, which are expected to add to operating costs and potentially, incremental capital investment requirements.

For more information, please refer to Moody's credit opinion under www.Moodys.com.

The principal methodologies used in rating GenOn Escrow Corp. and RRI Energy, Inc.were Unregulated Utilities and Power Companies published in August 2009, and Loss Given Default for Speculative-Grade Non-Financial Companies in the U.S., Canada and EMEA published in June 2009. Other methodologies and factors that may have been considered in the process of rating this issuer can also be found on Moody's website.

RRI is a merchant generation company headquartered in Houston, Texas. Mirant is a merchant generation company headquartered in Atlanta, Georgia. GenOn Energy is expected to be headquartered in Houston, Texas.

REGULATORY DISCLOSURES

Information sources used to prepare the credit rating are the following: parties involved in the ratings, parties not involved in the ratings, public information, confidential and proprietary Moody's Investors Service's information, confidential and proprietary Moody's Analytics' information.

Moody's Investors Service considers the quality of information available on the issuer or obligation satisfactory for the purposes of assigning a credit rating.

MOODY'S adopts all necessary measures so that the information it uses in assigning a credit rating is of sufficient quality and from sources MOODY'S considers to be reliable including, when appropriate, independent third-party sources. However, MOODY'S is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

Please see ratings tab on the issuer/entity page on Moodys.com for the last rating action and the rating history.

The date on which some Credit Ratings were first released goes back to a time before Moody's Investors Service's Credit Ratings were fully digitized and accurate data may not be available. Consequently, Moody's Investors Service provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

Please see the Credit Policy page on Moodys.com for the methodologies used in determining ratings, further information on the meaning of each rating category and the definition of default and recovery.

New York
James Hempstead
Senior Vice President
Infrastructure Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
A.J. Sabatelle
Senior Vice President
Infrastucture Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's Investors Service
250 Greenwich Street
New York, NY 10007
USA

Moody's rates GenOn Energy's credit facilities and senior unsecured debt
No Related Data.
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