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Moody’s places Xcel Energy Inc.’s ratings under review for possible downgrade and continues review of NRG Energy Inc.


New York, Feb. 15, 2002 — Moody’s placed Xcel Energy Inc.’s (senior unsecured A3) long term debt and preferred securities ratings under review for possible downgrade. Moody’s took this action to reflect possible pressure on Xcel’s own credit profile associated with its announced restructuring of subsidiary NRG Energy, Inc.’s (senior unsecured Baa3) finances and businesses.

Separately, Moody’s continued its review for possible downgrade of NRG.

The following ratings are affected:
* Xcel’s A3 issuer, senior unsecured long term and bank loan ratings and
* Xcel’s Baa2 preferred stock rating.

Moody’s review will not affect Xcel’s Prime-2 commercial paper rating. Nor will the review affect the ratings for Xcel subsidiaries Public Service Company of Colorado, Northern States Power Company (Minnesota), Southwestern Public Service Company, Northern States Power Company (Wisconsin), Borger Energy Associates, L.P. or any of their affiliates.

Xcel today announced it planned to exchange Xcel shares for all the 26% outstanding publicly held NRG shares, to invest $600 million additional equity in NRG and to take actions aimed at trimming and refocusing NRG’s generation portfolio.

One of Xcel’s stated primary goals in taking these actions is to improve NRG’s credit quality. Xcel’s actions are subject to certain SEC approvals and tender of approximately 60% of NRG’s public shares. Xcel plans to acquire the outstanding NRG shares by April. Moody’s placed Xcel under review for possible downgrade to reflect the probability that Xcel will borrow funds at the holding company both to carry out the planned actions and for additional funding should improving NRG’s credit profile require Xcel to invest additional funds in NRG or should some of Xcel’s planned actions-such as the sale of certain NRG assets-generate less cash than Xcel anticipates.

Of the $600 million additional equity Xcel plans to invest in NRG, $400 million will come from the issuance of Xcel stock with the remaining $200 million coming from other Xcel holding sources. Xcel plans to fund at least some of the $200 million through holding company borrowings. Moody’s has considered the Xcel holding company to be a financially balanced conduit with a credit profile derivative of its subsidiaries.

The holding company’s cash sources-regulated utility subsidiary dividends and its corporate dividend reinvestment plan-have roughly equaled its uses-corporate dividends and interest. To the extent the holding company levers significantly, the holding company could develop its own, non-derivative credit profile.

With regard to NRG, Moody’s acknowledges that Xcel’s planned actions will improve NRG’s credit profile by increasing its near term cash flow and helping reduce its high consolidated debt burden. However, Moody’s is continuing the NRG review for possible downgrade to determine whether the actions are both sufficient and achievable.

To the extent that Moody’s believes additional actions are necessary to support a particular NRG rating, Moody’s will consider additional actions proposed by Xcel. Moody’s notes that Xcel’s ability to inject additional funds into NRG may be limited by SEC imposed caps.

Moody’s continuing NRG review, initiated December 4th, is also examining NRG’s financing plans for its acquisition of generating assets from FirstEnergy for $1.5 billion and whether NRG, as any Baa3 company, has sufficient liquidity were it downgraded or were it to have less credit extended to it by its energy marketing and trading counterparties.

Xcel Energy Inc. and NRG Energy, Inc. are both based in Minneapolis, Minnesota.