As if there wasn't enough bad news already, Houston electricity provider Reliant Energy Inc. announced Monday it was reviewing strategic alternatives, including a possible sale....
...Reliant has been in financial straits since Hurricane Ike pounded Houston and Galveston, leaving 4 million of its customers without power, some for weeks. Last week, it cut its profit forecast and reconfigured its credit backstops to cut the risk of a liquidity crunch.
Still, bond rating agency Gimme Credit LLC, which rates its bonds at "underperform," said in a report last week that it wasn't just the hurricane that put Reliant in a bad position. "Failed strategies and bad policies are also to blame and will likely have longer lasting consequences," analyst Carl Blake wrote in a report Oct. 2.
Blake noted that last week Reliant replaced its inexpensive off-balance-sheet funding with Merrill Lynch & Co., which the company claimed couldn't meet its needs, with $1 billion in high-cost, on-balance-sheet capital. The funding, which was 3.5 times more expensive and far more restrictive, boosted Reliant's total debt to $3.6 billion from $2.9 billion. But Blake wrote that it has total liquidity of $2.7 billion, which gives it adequate coverage for its projected uses of $1 billion to $1.4 billion, even if natural gas prices decline another $4 per thousand cubic feet equivalent....
Paging Mr. Buffett?
