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The following article is from the Minneapolis Star Tribune. If you have been following Excel and my arguments on NRG, you will know that I think XEL investors would be better off if NRG went bankrupt.

By the way, who is buying all of these power plants? Whoever it is, they are getting them on the cheap and should, within a reasonable amount of time, be able to make a large profit on it. Maybe another investment opportunity?


NRG misses bond payments; bankruptcy may loom
Eric Wieffering
Star Tribune

Published Oct 17, 2002 XCEL17

Has NRG Energy stiffed another batch of creditors?

A spokeswoman for the power wholesaling company declined to say whether NRG made $25.3 million in payments on two bond issues due Wednesday. She said the company would wait until today to disclose the status of the payment.

Most analysts expected NRG to miss the payment, putting the Xcel Energy subsidiary in default on $600 million worth of unsecured debt.

"I'd be very surprised if they made this payment," said Jake Mercer, a fixed-income analyst at U.S. Bancorp Piper Jaffray in Minneapolis.

It would be the second default by NRG this month. Two weeks ago it missed a $47 million payment on $800 million in bonds backed by power plants in the southern United States.

Unlike the previous default, the current bonds are not secured by any NRG assets. They are widely held by individual investors as well as those who specialize in distressed debt. It would take only three investors to demand payment and thus force NRG into bankruptcy.

Mercer expects that investors will not do anything until Xcel presents a debt restructuring plan for NRG, which it has promised to do by the end of the month. But he said the risk of independent actions by some bond investors cannot be ruled out.

"Some of these investors are going to be very upset," Mercer said.

Another default is unlikely to result in any further downgrades to the credit ratings of Xcel, NRG or its utility subsidiary, Northern States Power. The last round of downgrades, in September, anticipated that NRG would miss the payments.

NRG, an energy wholesaler, is trying to avoid bankruptcy by restructuring about $9 billion in debt.

One component of the restructuring plan calls for selling about 35 NRG power plants. Xcel hopes to raise up to $1.3 billion in cash from the sales and eliminate $3 billion in debt.

But the pace of plant sales has been slow because many other power companies are trying to sell assets. Earlier this week, for example, TXU, a Texas-based electric company, said it was putting all of its European assets up for sale. The decision came just a week after TXU had pledged to invest $700 million in the struggling division.

As a result, the bids NRG is receiving are coming in slower, and will likely be lower, than executives had forecast.

"Every time someone puts an asset on the market, that's in competition with NRG, and that's depressing prices," Mercer said.

Plant sales announced to date would result in $300 million in cash and the elimination of $442 million in NRG debt. Xcel has warned, however, that it expects to lose money on the sales, which will result in a charge against its earnings.

Xcel is scheduled to release third-quarter earnings Monday. Its stock closed Wednesday at $8.86, down 14 cents.

NRG's next principal and interest payment payment is Dec. 15, for bonds backed by power plants in the northeastern United States. To date, NRG has said it plans to retain those plants. The bonds currently trade for between 75 and 80 cents on the dollar. The bonds backed by the southeastern plants trade between 57 and 62 cents on the dollar, while the unsecured bonds trade for about 23 cents on the dollar.
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