Moody's upgrades Reliant, Orion

Moody's Investors Service upgraded Reliant Resources' senior implied rating to B1 and its issuer rating to B2, Orion Power Holdings' senior unsecured ratings to B2 and Reliant Energy Mid-Atlantic Power Holdings senior secured ratings to B1. The outlook is stable.

Moody's said the upgrade the credit-stabilizing implications of improvements in Reliant's financial and liquidity profile following the closing of secured bank credit facilities, which contain no mandatory pay-down commitments until 2006 and restrict the company's activities in riskier business segments.

The rating derives significant support from the relative stability of the company's retail operations, which are projected to produce a substantial portion of the company's consolidated cash flows, Moody's noted.

The ratings also reflect the significant operational risks that continue to exist in the company's business plan, specifically, with respect to the wholesale generation business. Cash flow coverage of interest on an FFO and adjusted FFO basis is just over 2x, and cash flow as a percentage of total debt approximates 10%, Moody's said. The coverage metrics are primarily being restrained by the wholesale generation business, which is facing a challenging environment in most markets. Moody's notes, however, that the company's un-hedged coal-fired generation should benefit from a favorable gas price and spark-spread environment in the near term.

Moody's also cautions that numerous investigations with the FERC and the State of California continue, and the ratings incorporate a presumption for a successful settlement and conclusion to these matters.

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