Reliant Resources jumps by about 3 points on better-than-expected earnings

By Sara Rosenberg

New York, Nov. 10 - Reliant Resources Inc. was one of the bigger movers on Monday, with its notes heading higher by about three points following the release of better-than-expected third-quarter earnings.

The paper was quoted in the 94 context toward the end of the day, according to one trader, while a second trader said that trades were taking place in the 94¼ to 95 context all day. The bank debt was quoted in the area of 91 bid, 92 offered on Friday and was said to be slightly stronger by the end of last week as other energy companies reported relatively positive earnings as well, the second trader added.

For the quarter, the company reported a loss from continuing operations of $791 million, or $2.69 per share, compared to income from continuing operations of $108 million, or $0.37 per share, for the same period of 2002.

However, excluding the $985 million goodwill impairment charge and $37 million pre-tax charge related to the settlement with the Federal Energy Regulatory Commission, the company beat the average analyst estimate of $0.41 by earning $218 million, or $0.74 per share, from continuing operations in the third quarter of 2003.

Interest expense for the third quarter of 2003 was $154 million, compared to $93 million for the same period of 2002. The increase was attributed primarily to a $31 million write-off of deferred financing costs and increased interest rates resulting from capital market transactions in June and July. The company also had higher levels of borrowing, higher interest rates and an increase in amortization of deferred financing costs related to the March 2003 refinancing of its bank debt.

"Our retail business performed exceptionally well, and our wholesale business turned in a solid performance in spite of continued weak market conditions," said Joel Staff, chairman and chief executive officer, in a news release. "We also moved forward with actions to enhance the future performance of our company.

"Our retail business has been very successful in adding customers both in Texas and in the Northeast. In relation to our wholesale business, we are making good progress in the strategic review of our asset portfolio and in creating a business model that is appropriate for the environment in which we are operating."

For the first nine months ended Sept. 30, Reliant reported a loss from continuing operations of $873 million, or $2.98 per share, compared to income from continuing operations of $299 million, or $1.02 per diluted share, for the same period of 2002.

Interest expense for the nine months was $365 million, compared to $178 million for the same period of 2002.

As for the earnings outlook for 2003, the Houston electricity and energy company maintained its guidance for adjusted income from continuing operations of $0.10 per share.

Huntsman LLC's bank debt also was stronger on Monday in response to third-quarter numbers, with quotes moving to the 90 bid, 91 offered area, according to one trader. A second trader had the paper quoted at 90¾ bid, up from around 88 bid, 89 offered previously.

On Monday, the combined Huntsman companies reported third-quarter 2003 EBITDA of $170 million, which including $10.7 million in restructuring charges and losses on the sale of accounts receivable, compared to second quarter 2003 pro forma EBITDA of $136.3 million and third-quarter 2002 pro forma EBITDA of $210.5 million.

For the quarter, Huntsman had EBITDA of $49.7 million on revenues of $828.9 million, compared to pro forma EBITDA of $70 million on revenues of $730.5 million for the same period in 2002.

Huntsman International had EBITDA of $104.2 million on revenues of $1.28 billion, compared to EBITDA of $131 million on revenues of $1.20 billion for the same period in 2002.

"We are pleased that EBITDA at the Huntsman companies stabilized in the third quarter relative to second quarter at a time when earnings in our industry generally have been soft. We believe this reflects the strength of our differentiated product portfolio and our vigilance in managing costs as the chemical industry remains in the trough of the cycle," said Peter R. Huntsman, president and chief executive officer, in a news release.

Furthermore, the company announced that it has commenced an initiative to reduce fixed costs by a minimum of $200 million over the next 18 months through cost reduction plans, increasing the use of shared services across its businesses, site consolidations and headcount reductions in the near future.

During the quarter, Huntsman LLC completed a $380 million offering of senior secured notes, which was used to prepay about $65 million under the revolver and $297 million under the term loan A, while Huntsman International raised $205 million of additional term loan B and term loan C debt in October, which was used to pay down the term loan A in full and repay about $53 million under the revolver.

"Proceeds from these transactions have allowed Huntsman to make significant pre-payments of term debt maturities and significant payments under the revolving credit facilities of both companies, freeing up substantial amounts of liquidity as trough conditions persist in the industry," the release said.

As of Sept. 30, Huntsman LLC had borrowings of about $85 million outstanding under its $275 million revolver in addition to about $14 million in letters of credit issued. As a result of the prepayment on the company's credit facility there are no scheduled term loan payments until December 2005.

As of Sept. 30, Huntsman International had borrowings of $199 million outstanding under its $400 million revolver in addition to about $7 million in letters of credit issued. As a result of the prepayment of term debt, there are no scheduled term debt maturities under the senior secured credit facilities until the second quarter 2005. In 2005 and 2006, the scheduled term debt maturities are about $12 million in each year.

Huntsman is a Salt Lake City petrochemical company.

Meanwhile, El Paso Corp.'s bank debt was basically unchanged following the release of third-quarter results, with the paper quoted at around 98 bid, 99 offered, according to a trader.

For the quarter the company reported a net loss of $146 million, or $0.24 per diluted share, compared with a net loss of $69 million, or $0.12 per diluted share, in the third quarter of 2002. Adjusted for significant items, the company had a third quarter 2003 net loss of $6 million, or $0.01 per diluted share, compared with net earnings of $54 million, or $0.09 per diluted share, in the third quarter of 2002.

"We continued to show progress on debt reduction and liquidity in the quarter," said Doug Foshee, president and chief executive officer, in a news release. "In addition, we're on track to meet our asset sales goal for the year. Unfortunately, a good quarter in the pipeline and midstream areas was offset by disappointing results in E&P as we continue to rationalize this business.

"My first two months at El Paso confirm my belief that while we have significant challenges still ahead, our people and our core assets will allow us to restore the long-term earnings power of the company and restore our balance sheet."

As of Oct. 31, the Houston energy company had $1.6 billion of available cash and a $3 billion two-year credit facility, with $900 million drawn and $1 billion used for letters of credit.

In follow-up news, Key Energy Services Inc. closed on a news $175 million four-year revolver with an interest rate of Libor plus 200 basis points. PNC was co-lead and bookrunner on the deal, with Wells Fargo acting as the other co-lead.

Proceeds will be used for short-term working capital, letters of credit and flexibility to reduce or refinance higher cost debt.

Key Energy is a Midland, Texas, rig-based, onshore well service company.

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