Reliant sells Texas business to NRG and posts fourth quarter loss

In addition to the sale of its Texas retail business to NRG Energy for $287.5m, Reliant Energy has announced fourth quarter losses, including $177m from energy derivatives.

According to a statement released today by Reliant, the loss from continuing operations before income taxes for the fourth quarter of 2008 was $455 million, compared to income of $313 million for the fourth quarter of 2007. The 2008 GAAP results include net unrealized losses from energy derivatives of $177 million, credit-enhanced retail structure unwind costs of $61 million and a goodwill impairment charge of $305 million. The reported numbers for 2007 include net unrealized gains from energy derivatives of $277 million.

The company's board of directors will continue to review options to enhance stockholder value, in addition to the sale of the company's Texas retail business to NRG Energy for $287.5m in cash. Net proceeds from this deal will be offered to secured debt holders to reduce outstanding debt, according to Reliant.

The closing of the sale, expected to occur in the second quarter of 2009, will also resolve litigation regarding Reliant's credit arrangements with Merrill Lynch.

On 24 December 2008, Merrill Lynch filed a suit with the New York Supreme Court claiming units of Reliant Energy defaulted when the company cancelled a $300m credit agreement on 5 December. In a filing to the Securities and Exchange Commission also made on 24 December 2008, Reliant said it believed it had the right to terminate the Working Capital Facility executed on 24 September 2006.

NRG has negotiated a transitional credit sleeve facility with Merrill Lynch, which will allow NRG to inject $200m in cash into the retail business. This will provide collateral support for up to 18 months while the transition occurs.

The acquisition will add 1.8 million customers to NRG's operations. "Matching NRG's generation with Reliant's retail load reduces the need for third party power contracts and collateral support for the retail business," said Robert Flexon, NRG chief financial officer. "Merrill Lynch's credit support allows this transformation to happen in a structured and rational way."

NRG is also currently subject to a hostile takeover attempt by Exelon Corp. The latter announced on 26 February that NRG shareholders holding 51% of common stock currently support the deal, which it has extended until 26 June 2009.

On 19 October 2008, Exelon proposed to acquire all outstanding shares of NRG common stock at a fixed exchange ratio of 0.485 of a share of Exelon common stock for each share of NRG common stock - a 37% premium for shareholders. NRG rejected the offer twice, prompting Exelon to go directly to NRG shareholders on 12 November 2008.