UNITED STATES OF AMERICA
before the
SECURITIES AND EXCHANGE COMMISSION
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In the Matter of:
CERTIFICATE
CENTERPOINT ENERGY, INC. OF
1111 Louisiana NOTIFICATION
Houston, Texas 77002
(70-9895)
PUBLIC UTILITY HOLDING COMPANY ACT OF 1935
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THIS IS TO CERTIFY that, in accordance with the terms and conditions of the
application-declaration, as amended, of Reliant Energy, Incorporated and
CenterPoint Energy, Inc. in the above-captioned file and the order of the
Securities and Exchange Commission with respect thereto (HCAR No. 27548 (July 5,
2002)), CenterPoint Energy, Inc. is reporting certain rating agency action as
set forth in more detail in the attached press releases from Moody's Investor
Service, incorporated herein by reference.
CENTERPOINT ENERGY, INC.
By: /s/ Rufus S. Scott
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Rufus S. Scott
Vice President and Assistant Corporate Secretary
Dated: November 6, 2002
Rating Action: CenterPoint Energy, Inc.
MOODY'S LOWERS CENTERPOINT ENERGY INC. RATINGS TO Ba1 FROM Baa2 AND LOWERS
CENTERPOINT ENERGY RESOURCES TO Ba1 FROM Baa3.
MOODY'S LOWERS CENTERPOINT ENERGY HOUSTON ELECTRIC RATINGS TO Baa2 SECURED FROM
A3 SECURED
Approximately $12 Billion of Debt Securities Affected.
New York, November 04, 2002 -- Moody's lowered to Ba1 from Baa2 the senior
unsecured ratings assigned to CenterPoint Energy, Inc. the new holding company
formed to effect the restructuring of Reliant Energy, Inc. (REI) on September 30
2002. Moody's also lowered to Not-Prime from Prime-2 CenterPoint Energy's short
term rating for commercial paper. At the same time, Moody's assigned a Ba1
rating to CenterPoint Energy's new $3.85 billion bank facility. Moody's also
lowered to Ba1 from Baa2 the senior unsecured rating assigned to CenterPoint
Energy Resources Corp. (CERC), the regulated gas distribution company, and to
Not-Prime from Prime-2 CERC's rating for commercial paper. The rating outlook
for CenterPoint Energy is negative as is the outlook for CERC's rating.
Moody's lowered to Baa2, from A3, the senior secured ratings assigned to
CenterPoint Energy Houston Electric, the regulated wires company (or TDU).
Moody's assigned a Baa2 secured rating to TDU's new $850 million secured bank
facility. The rating outlook for the TDU is stable. These actions conclude a
review initiated July 31, 2002.
The downgrades reflect the limited financial flexibility experienced by the
holding company given delays in spinning-off its 80% owned subsidiary, Reliant
Resources, Inc. (RRI, Ba3) which it finally accomplished September 30th. RRI
related challenges have constrained CenterPoint Energy's access to capital
markets and as a result, the company implemented new credit facilities on
October 10 which Moody's believes contain onerous terms.
New facilities available to CenterPoint total $4.7 billion in 364 day bank
financing, due in October, 2003. However, the facilities ($3.850 million
available to the parent and $850 million available to the TDU) mature on
November 15 unless $420 million is arranged at the TDU to replace maturing bond.
Both facilities contain mandatory commitment reductions next year ($600 million
in each of February and June of 2003 for the parent, and $450 million in April
for the TDU.) The company is in discussions with third parties to arrange the
financing and plans to access the capital markets to replace bank funding next
year.
Bank funding at the TDU and the incremental $420 million are secured by general
mortgage bonds issued under a new bond indenture between CenterPoint Energy
Houston Electric and JPMorgan Chase Bank, as trustee. Although the lien of the
indenture is junior, subject and subordinate to the prior lien of the November
1944 first mortgage bond indenture, the first and general mortgage bonds are
pari passu in right of payment. As a result, we are assigning to the general
mortgage bonds the same Baa2 secured rating as the rating of the first mortgage
bonds. Sufficient collateral exists per the bonding ratio to secure the two on
an original cost basis.
The Public Utility Commission of Texas allows the TDU to earn an 11.25% return
on 40% equity per regulatory books. While additional capacity under the first
and general mortgage indentures would allow the utility to incur additional
raise additional leverage, the Public Utility Holding Company Act precludes
CenterPoint or any of its subsidiaries from exceeding 70% debt. The SEC granted
the holding company a temporary exemption from this proscription in approving
CenterPoint's restructuring since its plans to de-leverage from 80% toward 60%
by 2005 are codified in the 1999 law deregulating electricity markets in Texas
effective this year (SB 7.) We have lowered the TDU's rating to Baa2 to reflect
the possibility that it will lever up in order to meet the commitment reductions
in the bank facilities.
The downgrade of CERC ratings reflect concerns about the adequacy of its
liquidity over the coming months. CERC's ratings and outlook have been changed
to reflect those of its parent, because CERC will likely rely on CenterPoint
Energy for liquidity in the near-term. Available liquidity on its two bank
facilities is very limited going into the winter heating season when CERC's
working capital needs can be at their highest. Capacity under its $350 million
revolver is fully utilized. The expiration on its $150 million trade receivables
program has been extended to November 15, 2002, while the company continues its
negotiations to convert this program into a bankruptcy-remote structure. The
trade receivables facility agreements currently being negotiated contain rating
triggers, whereby a downgrade by one rating agency to below investment grade
will restrict CERC's use of this program.
The negative outlook at CenterPoint Energy reflects near term liquidity
challenges in the mandatory commitment reductions required in the bank
financing. The negative outlook at CERC reflects its dependence upon CenterPoint
Energy for interim liquidity needs. The stable outlook at the TDU reflects its
relative isolation from challenges at the parent. A return to stable outlooks
for CenterPoint Energy and CERC will depend on the company's ability to resolve
its near term liquidity challenges.
CenterPoint Energy, Inc. is headquartered in Houston, Texas.