NRG Energy begins capital reallocation with $300 million debt repayment, $100 million share buyback

By Jennifer Lanning Drey

Portland, Ore., Feb. 28 - NRG Energy, Inc. launched its 2008 capital allocation plan with a $300 million repayment to its term loan B and the repurchase of $100 million of common shares, Robert Flexon, NRG's chief financial officer, said Thursday during the company's fourth-quarter earnings conference call.

"As we begin 2008, our objectives remain the same - achieving balance across the program," he said.

NRG is committed to offering $446 million to its first-lien lenders as part of an excess cash flow provision in its existing credit agreement. The $300 million payment will be credited against the required offer to the first-lien lenders, resulting in a $146 million offer to lenders in the first quarter, Flexon explained.

The CFO also reported that NRG's board of directors has authorized an additional $200 million for common share repurchases that would bring the 2008 capital allocation program to $300 million in total common share repurchases.

NRG expects to complete the share repurchases by November, he said.

Extends maturity of CSF 1

Because the company's credit agreement and senior notes indentures contain restricted payment provisions that limit the use of funds for common share repurchases, NRG has entered into an agreement with Credit Suisse under which NRG can extend the $220 million notes and preferred interest maturities of NRG Common Stock Finance I, LLC (CSF 1) to June 2010 from October 2008.

"By pursuing this refinancing, NRG retains 100% of the upside associated with the CSF 1 structure after the options settlement and shifts the use of [restricted payment] capacity from debt repayment to common stock repurchases," Flexon said.

One year ago, NRG stated a goal of a 3% annual return of cash to shareholders, and the company is still committed to the goal, David Crane, NRG's chief executive officer, said Thursday.

Flexon said NRG also expects to continue to deliver the targeted return to shareholders in 2009.

"Should additional capacity be needed, NRG may consider extending the maturity of its [NRG Common Stock Finance 2, LLC], structure currently scheduled for Oct. 29 or may pursue other alternatives if market conditions allow," he said.

Liquidity up $488 million from '06

NRG ended 2007 with liquidity of $2.7 billion, up $417 million from Sept. 30 and up $488 million from the end of 2006.

"Liquidity has improved dramatically from last year while our net debt to capital ratio also shows significant improvement as compared to 2006," Flexon said.

The company's $300 debt repayment dropped its corporate debt to corporate EBITDA ratio to less than 3.5 to 1.

Net cash decreased by $72 million during the quarter as a result of cash being used to pay down debt, repurchase shares and fund capital expenditures, which more than offset strong cash flow from operations.

Quarterly net cash provided by operating activities was $541 million, reflecting $507 million of adjusted EBITDA for the quarter and a $123 million seasonal reduction in working capital, partially offset by an $18 million increase in cash collateral.

Cash increased by $322 million from Dec. 31, 2006, with strong cash flow being driven by higher adjusted EBITDA resulting from a Texas hedge reset transaction in the fourth quarter of 2006.

"We manage this business for cash and this result proves 2007 was no exception," Crane said.

For the fourth quarter, NRG reported net income from continuing operations of $100 million, compared to a net loss of $35 million for the fourth quarter of 2006.

Based in Princeton, N.J., NRG owns and operates a portfolio of power-generating facilities, primarily located in the United States.

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