Fitch Assigns 'B' Short-Term IDR to Reliant Energy, Inc.; Outlook Stable

Business Wire, Sept 11, 2007

CHICAGO -- Fitch Ratings has assigned a 'B' short-term Issuer Default Rating (IDR) to Reliant Energy, Inc. (RRI) and affirmed its ratings as follows:

--Long-term IDR at 'B';

--Senior secured debt at 'BB/RR1';

--Senior unsecured debt at 'B /RR2'.

The Rating Outlook is Stable. Approximately $4.0 billion of debt is affected.

The ratings reflect RRI's high degree of leverage relative to operating cash flows, the uncertainty of cash flows from the merchant segment, and a retail segment facing increased competition in Texas. The cancellation of the asset sale program reduces the likelihood of substantial near-term de-leveraging. Cash from operations should be able to fund the current capital spending program, which does not include significant brownfield development.

The affirmed 'BB/RR1' rating reflects the superior recovery prospects for these debt obligations which Fitch estimates at approximately 80% under a conservative scenario that assumed below market valuations for RRI's coal generating fleet and weak financial performance at Retail. The senior unsecured rating of 'B /RR2' reflects the structural subordination of this debt, and weaker recovery prospects.

The Stable Rating Outlook reflects Fitch's expectation that credit ratios will stay within parameters for the current ratings. As part of its analysis, Fitch prepared an alternate price scenario to gauge RRI's performance in a lower natural gas price environment. Specifically, Fitch's model incorporated a decline in natural gas prices to approximately $4.50 per mmBtu in 2009 compared to management's projection of $8.70 per mmBtu. Although the lower gas price case results in weaker cash flows from the wholesale segment, credit ratios still remain within current ratings parameters.

Factors leading to potential rating improvement include additional de-leveraging, a sustained increase in market heat rates, and a track record of stable financial performance at Retail in a fully competitive environment.

Fitch's Recovery Ratings (RR) are a relative indicator of creditor recovery prospects on a given obligation within an issuers' capital structure in the event of a default. A broad overview of Fitch's RR methodology as it relates to specific sectors can be found at www.fitchratings.com/recovery.> Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.