Larry, here is the complete Goldman Report:
Mar 27, 2003 FERC Summary Hurts RRI & Sector; FERC Commissioners
Hold Call After Market Close
A.
Wednesday's FERC open meeting to address numerous California-related issues had a
substantial negative impact on Reliant Resources shares (RRI down 24%) and the
sector. Investors reacted unfavorably to (1) an increase in potential refunds owed to
CA. (2) potential enforcement actions against RRI and certain other companies for
allegedly abusing the Western market and (3) no formal clarity on motions by CA and
various utilities in the West to break certain power contracts. While yesterday's
decisions have increased the overall uncertainty level for the group, we continue to
believe that the probability of large cash outlays for refunds is low, that enforcement
action will not scuttle RRI's prospects for a revised bank deal, and that almost all of the
California contracts will be upheld.
Mar 11, 2003 RRI Exiting Proprietary Gas Trading Business. Lowering `03
EPS Guidance
B.
RRI (OP/N) announced that is is exiting its proprietary trading business following an
$80 M pre-tax loss resulting from gas related trades. Although RRI has significantly
reduced its trading and marketing business over the last year, the company had plans to
singularly pursue the operation of its proprietary gas trading business as historical
results had been strong and required little collateral backing. Although not entirely
unexpected, we view this action by management as a positive as it removes uncertainty
from the business going forward and as it is being looked upon favorably by RRI's bank
syndicate. However, as a result of this loss, RRI has lowered its 2003 earnings
guidance to $0.80-$1.00 per share from $0.90-$1.10 per share. Accounting for this
announcement, we are lowering our 2003 EPS estimate to $0.90 per share from $1.05
Feb 21, 2003 RRI Announces Sale of UNA Assets; Bank Refinancing
Negotiations Ongoing
C.
In a positive surprise Reliant Resources (OP/N) announced the sale of its European
business to nv Nuon, a Netherlands based electricity distributor for approximately $1.3
billion. The timing of the news and “full” price are better than expectations. In
addition to the positive news, we think the sale is modestly accretive. It gives the
company an opportunity to improve its the balance sheet, offers more flexibility to
address the possible acquisition of Texas Genco (TGN-$15 NR), and should also help
with the ongoing bank negotiations. |
