Xcel Energy 2002 Annual Report Download - page 47

Many of the corporate guarantees and commitments of NRG and its subsidiaries require that they be supported or replaced with letters
of credit or cash collateral within 5 to 30 days of a ratings downgrade below investment grade by Moody’s or S&P. As a result of the
multiple downgrades, NRG estimated that it would be required to post collateral of approximately $1.1 billion.
Starting in August 2002, NRG engaged in the preparation of a comprehensive business plan and forecast. The business plan detailed the
strategic merits and financial value of NRG’s projects and operations. It also anticipated that NRG would function independently from
Xcel Energy and thus all plans and efforts to combine certain functions of the companies were terminated. NRG utilized independent
electric revenue forecasts from an outside energy markets consulting firm to develop forecasted cash flow information included in the
business plan. NRG management concluded that the forecasted free cash flow available to NRG after servicing project-level obligations
would be insufficient to service recourse debt obligations. Based on this information and in consultation with Xcel Energy and its financial
advisor, NRG prepared and submitted a restructuring plan in November 2002 to various lenders, bondholders and other creditor groups
(collectively, NRG’s creditors) of NRG and its subsidiaries. The restructuring plan was expected to serve as a basis for negotiations with
NRG’s creditors in a financially restructured NRG.
The restructuring plan also included a proposal by Xcel Energy that in return for a release of any and all claims against Xcel Energy,
upon consummation of the restructuring, Xcel Energy would pay $300 million to NRG and surrender its equity ownership of NRG.
In mid-December 2002, the NRG bank steering committee submitted a counterproposal and in January 2003, the bondholder credit
committee issued its counterproposal to the NRG restructuring plan. The counterproposal would request substantial additional payments
by Xcel Energy. A new NRG restructuring proposal was presented to the creditors at the end of January 2003. A preliminary settlement
has been reached with NRG’s creditors. Since many of these conditions are not within Xcel Energy’s control, Xcel Energy cannot state
with certainty that the settlement will be effectuated. Nevertheless, Xcel Energy management is optimistic at this time that the settle-
ment will be implemented.
On March 26, 2003, Xcel Energy’s board of directors approved a tentative settlement with holders of most of NRG’s long-term notes
and the steering committee representing NRG’s bank lenders regarding alleged claims of such creditors against Xcel Energy, including
claims related to the support and capital subscription agreement between Xcel Energy and NRG dated May 29, 2002 (Support Agreement).
The settlement is subject to a variety of conditions as set forth below, including definitive documentation. The principal terms of the
settlement as of the date of this report were as follows:
Xcel Energy would pay up to $752 million to NRG to settle all claims of NRG and the claims of NRG against Xcel Energy, including
all claims under the Support Agreement.
$350 million would be paid at or shortly following the consummation of a restructuring of NRG’s debt through a bankruptcy proceeding.
It is expected that this payment would be made prior to year-end 2003. $50 million would be paid on Jan. 1, 2004, and all or any part of
such payment could be made, at Xcel Energy’s election, in Xcel Energy common stock. Up to $352 million would be paid on April 30, 2004,
except to the extent that Xcel Energy had not received at such time tax refunds equal to $352 million associated with the loss on its
investment in NRG. To the extent Xcel Energy had not received such refunds, the April 30 payment would be due on May 30, 2004.
$390 million of the Xcel Energy payments are contingent on receiving releases from NRG creditors. To the extent Xcel Energy does not
receive a release from an NRG creditor, Xcel Energy’s obligation to make $390 million of the payments would be reduced based on the
amount of the creditor’s claim against NRG. As noted below, however, the entire settlement is contingent upon Xcel Energy receiving
releases from at least 85 percent of the claims in various NRG creditor groups. As a result, it is not expected that Xcel Energy’s payment
obligations would be reduced by more than approximately $60 million. Any reduction would come from the Xcel Energy payment due
on April 30, 2004.
Upon the consummation of NRG’s debt restructuring through a bankruptcy proceeding, Xcel Energy’s exposure on any guarantees or
other credit supported obligations incurred by Xcel Energy for the benefit of NRG or any subsidiary would be terminated and any cash
collateral posted by Xcel Energy would be returned to it. The current amount of such cash collateral is approximately $11.5 million.
As part of the settlement with Xcel Energy, any intercompany claims of Xcel Energy against NRG or any subsidiary arising from the
provision of intercompany goods or services or the honoring of any guarantee will be paid in full in cash in the ordinary course except
that the agreed amount of such intercompany claims arising or accrued as of Jan. 31, 2003, will be reduced from approximately $55 million
as asserted by Xcel Energy to $13 million. The $13 million agreed amount is to be paid upon the consummation of NRG’s debt
restructuring with $3 million in cash and an unsecured promissory note of NRG on market terms in the principal amount of $10 million.
NRG and its direct and indirect subsidiaries would not be reconsolidated with Xcel Energy or any of its other affiliates for tax purposes
at any time after their June 2002 re-affiliation or treated as a party to or otherwise entitled to the benefits of any tax-sharing agreement
with Xcel Energy. Likewise, NRG would not be entitled to any tax benefits associated with the tax loss Xcel Energy expects to incur in
connection with the write-down of its investment in NRG.
notes to consolidated financial statements
xcel energy inc. and subsidiaries page 61