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Reliant Energy Inc. Q1 2010 Earnings Call Transcript

Reliant Energy Inc. Q1 2010 Earnings Call Transcript

Reliant Energy Inc. (RRI)

Q1 2010 Earnings Call

May 06, 2010 10:00 am ET


Dennis Barber - VP, IR

Mark Jacobs - President and CEO

Rick Dobson - EVP and CFO


Daniel Eggers - Credit Suisse

Brandon Blossman - Tudor, Pickering, Holt

Lasan Johong - RBC Capital Markets

Nitin Dahiya - Nomura Securities

Brian Chin - Citigroup

Ameet Thakkar - Bank of America/Merrill Lynch

Michael Lapides - Goldman Sachs

Neel Mitra - Simmons & Company International.

Gregg Orrill - Barclays Capital

Robert Howard - Prospector Partners

Raymond Leung - Goldman Sachs

John King - Western Asset Management

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Welcome to the RRI Energy's First Quarter 2010 Earnings Conference call. My name is Christine and I will be your operator for today's conference. (Operator Instructions). I will now turn the call over to Mr. Dennis Barber, Vice President, Investor Relations, Mr. Barber, you may begin.

Dennis Barber

Good morning and welcome to RRI Energy's first quarter conference call. Leading the call this morning are Mark Jacobs, President and CEO and Rick Dobson, our Chief Financial Officer. Following our prepared remarks, we'll have a question and answer session.

The earnings release as well as the slide presentation we are using today is available on our website at in the investor relation section. A replay of this call will also be available on the website approximately two hours after the call.

Consistent with our past practice, we are using several non-GAAP measures to provide additional insight into the operating results. Reconciliations of the non-GAAP measures to GAAP figures are available on the website.

As we previously indicated, we are not updating the 2010 or 2011 outlook in light of our pending merger with Mirant and do not expect to do so until after the transaction is closed.

I would remind you that the principle near term drivers of our open and adjusted EBITDA or commodity prices. We have provide commodity price sensitivities that allow you to generally understand the impact of the commodity price changes on our outlook. And finally any projections or forward looking statements made on this call are subject to the Safe Harbors contained in our SEC filings and actual results may differ materially from the projections in these forward-looking statements.

I'll now turn it over to Mark.

Mark Jacobs

Thank you Dennis, and good morning everyone. Welcome to our first quarter earnings call. This morning, we released our Q1, 2010 results. We reported open EBITDA of $25 million and adjusted EBITDA of $32 million. We also generated $61 million of free cash flow during the quarter. All of these figures were up slightly versus Q1 2009. Rick will take you through the results in more detail but the headlines are that we continue to execute well despite the challenging commodity price in economic environment. The highlight since our last earnings call, is our announced merger with Mirant Corporation to form GenOn Energy.

On slide five, I wanted to touch on the principle benefits of this transaction. The bottom line is that this transaction creates significant near-term value, while it preserves the fundamental value proposition of a recovery in commodity prices and supply demand fundamentals. GenOn will be able to operate with $150 million lower cost than the combined spending of Mirant and RRI Energy is separate companies.

The savings come from the scalability of cost operate the business, that are outside of plant spending. Corporate support and G&A costs. While cost reductions will come from both Mirant and RRI, here’s a simplistic way to think about the $150 million figure. If you add total support cost for both companies on a standalone basis, you come up with approximately $390 million.

Let’s assume that half of that were $195 million is from each company, achieving $150 million in savings mean adding an incremental $45 million of cost to either company on a standalone basis to support the addition of the others plans. We are very confident these savings will be fully realized in 2012. We are also committed to building GenOn with the best operating practices from each of Mirant and RRI Energy. Undoubtedly, using the best practices from both companies we’ll find other opportunities to improve the bottom line.

But they are not included in the $150 million figure. Now, a few other highlights of the combination. Genon will be strong financially with manageable debt levels and ample liquidity. The merger will create one of the largest merchant generation companies in the US with 24,7000 megawatts of capacity. And Genon will have a diversified geographic presence in increased scale in important competitive markets like TJM.

On slide six, I’ll provide an update on the steps to close the merger. The key takeaway is that we are on track to close before the end of the year. There are three significant steps to get the transaction closed. Regulatory approvals, financing and shareholder approval, in terms of regulatory approvals we filed for New York public service commission approval two weeks ago and we expect to be making the FERC Hart-Scott-Rodino filings in the very near future.

We will fully cooperate with a regulatory agencies and their review of the transaction but we are not aware of any material issues. Rick and Bill Holden, Mirant’s CFO are leading our efforts on the financing front. To remind you between Mirant and RRI there is approximately $1.8 billion of debt that we intend to address prior to closing.

In addition, we expect to replace our respective revolving credit arrangements with the new facility. The team is in active dialog with a variety of financing sources and is evaluating the best path forward.

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