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By Samuel R. Avro on Nov 26, 2008 with no responses

Reliant Energy Giving Up On New Financing Deal

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Reliant Energy is dropping plans for $1 billion in additional financing from Goldman Sachs and a private equity group that was meant to replace a deal with Merrill Lynch.

The Houston-based electric wholesaler and retailer had closed on a $350 million investment from First Reserve and had until today to significantly cut the collateral requirements of its retail business in order for the $650 million Goldman loan to close.

In an announcement this morning Reliant said it “… is currently pursuing a longer term unwind agreement with Merrill Lynch.”

“We believe Reliant has adequate liquidity without the GS Loan Partners and First Reserve financings and this course of action creates more value for our shareholders,” said Reliant Chief Executive Officer Mark Jacobs.

The announcement should not have any impact on residential or small business customers.

Reliant spokeswoman Pat Hammond said the company decided foregoing the financing made more sense since the company already decided it would leave the commerical and industrial retail business that was so collateral intensive.

“Merrill must have, for some reason, become more comfortable with their cash-flow situation and their collateral that they have outstanding,” Gordon Howald, an analyst at Calyon Securities in New York who has a “buy” rating on Reliant shares and doesn’t own any, told Bloomberg News. “We anticipate there will be an announcement by Reliant of some kind of positive action before year-end.”

Reliant jumped 63 cents, or 14 percent, to $5.05 in midmorning composite training on the New York Stock Exchange.

The new financing would have cost about 3.5 times as much as the deal it was expected to replace, according to Carl Blake, an analyst at Gimme Credit in New York.

“It just leaves (Reliant) in a limbo because now everything depends on Merrill’s willingness to extend the existing credit facility,” Angie Storozynski, an analyst at Macquarie Capital who has a “neutral” rating on Reliant shares and doesn’t own any, told Bloomberg. “Reliant believes that it’s in Merrill’s best interest to extend it.”

Article continues… Houston Chronicle