01—Abstract
Summary
Summary of the 10-K filed March 31, 2003. Cited figures are marked; the original filing is the authoritative source.
NRG Energy, Inc. is a wholly owned subsidiary of Xcel Energy Inc. that owns and operates power generation facilities in the United States and internationally.
As of December 31, 2002, it reported approximately $9.4 billiona of debt at the corporate and project levels. Its financial condition has deteriorated significantly, and the company reported a 2002 net loss of $3,464.3 million, including $2,656.1 million of special charges (mostly asset impairments). The company is in default on various corporate-level debt obligations, and it is likely to file for Chapter 11 bankruptcy protection as part of its restructuring.
The filing states that Xcel Energy's equity ownership would most likely be eliminated in such a filing, and that a large number of creditor claims would be impaired. On March 26, 2003, Xcel Energy announced a tentative settlement with holders of most of NRG's long-term notes and the bank lender steering committee. Under the settlement, Xcel would make payments totaling up to $752 millionb over 13 months in exchange for creditors waiving claims against Xcel, including $350 million at or shortly after a debt restructuring, $50 million on January 1, 2004, and $352 million in April 2004.
The settlement is subject to approvals and definitive documentation, and there is no assurance those approvals will be obtained. The auditor's report includes a going-concern paragraph, and management states there is substantial doubt about NRG's ability to continue as a going concern. The company is pursuing asset sales and has completed or agreed to sell several international and domestic projects, including Killingholme, Csepel, Entrade and Crockett.
It also faces a large number of material legal proceedings, including California wholesale electricity litigation, an involuntary bankruptcy petition in Minnesota, and claims from Fortistar, General Electric and Siemens. Given these conditions, investors face a very high degree of uncertainty about the value of NRG's equity and debt.
02—Key points
Key Highlights
- 2002 net loss of $3,464.3 million, compared with net income of $265.2 million in 2001, driven by $2,656.1 million of special charges and $196.2 million of equity investment write-downs.
- Approximately $9.4 billion of corporate and project-level debt at December 31, 2002, with NRG in default on various corporate-level obligations.
- Auditor's report includes a going-concern paragraph; management says there is substantial doubt about NRG's ability to continue as a going concern.
- Xcel Energy announced a tentative settlement on March 26, 2003 with holders of most long-term notes and bank lenders, involving payments of up to $752 million over 13 months, subject to conditions and approvals.
- A voluntary or involuntary Chapter 11 filing is considered likely; the filing states Xcel's equity ownership would most likely be eliminated in that case.
- Total assets were $10,883.7 million at year-end 2002, down from $12,913.6 million, and stockholder's equity was a deficit of $696.2 million.
- Several projects were sold or agreed to be sold in 2002–early 2003, including Crockett, Csepel and Entrade, and Killingholme, which was transferred to lenders in January 2003.
03—Questions
Frequently Asked Questions
Is NRG Energy likely to file for bankruptcy?
The filing states that it is likely NRG Energy and certain subsidiaries will file for Chapter 11 bankruptcy protection in connection with restructuring. It also says that if negotiations do not produce a consensual plan, a voluntary Chapter 11 filing is highly probable. An involuntary petition is also pending in Minnesota, and the court's decision on dismissing it or entering an order for relief is uncertain.
What is the status of the Xcel Energy settlement?
On March 26, 2003, Xcel Energy's board approved a tentative settlement with holders of most long-term notes and the bank lender steering committee. It requires approval by at least a majority in dollar amount of bank lenders and noteholders, plus definitive documentation. The filing says there can be no assurance those approvals will be obtained.
Why did NRG Energy record such large losses in 2002?
The filing attributes the loss mainly to asset impairment charges after credit rating downgrades, defaults under credit agreements, increased collateral requirements and reduced liquidity in the third quarter of 2002. It cites declining power prices, higher fuel prices, a weaker energy industry and economy, and lower results at West Coast Power.
What happens to NRG Energy's common stock and Xcel Energy's ownership?
NRG's common stock has no established public trading market since June 2002, when Xcel Energy completed an exchange offer for the publicly held shares. The company has not paid dividends. The filing states that if NRG files for Chapter 11, Xcel Energy's equity ownership would most likely be eliminated.
What legal and regulatory risks does NRG face?
NRG faces numerous matters, including California wholesale electricity litigation and investigations, FERC's California refund proceeding, a Minnesota involuntary bankruptcy petition, Fortistar claims seeking more than $35 million and a RICO claim of about $350 million, turbine termination claims from GE ($120 million) and Siemens (about $45 million), and an FirstEnergy arbitration. The company says it cannot predict the outcome of many of these matters.
04—Continue