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Posted on 07/24/2002 1:25:43 PM PDT by Ernest_at_the_Beach
NEW YORK, July 24 (Reuters) - Shares of Reliant Energy Inc. (NYSE:REI - News) and its Reliant Resources Inc. (NYSE:RRI - News) unit, which is under investigation by federal regulators for sham trades, plunged as much as 46 percent in Wednesday trade.
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The declines come on top of big hits companies in the industry have sustained this week, as cash and credit woes called into question the viability of some of its major players.
The day before, Dynegy Inc. (NYSE:DYN - News) said a downturn in trading and lower power prices forced a cut in its cash flow forecast, increasing fears that the company would face a severe cash crunch and fail. It also postponed a $325 million mortgage bond sale.
At the same time, rating agency Standard & Poor's cut the credit of Williams Cos. (NYSE:WMB - News) to "junk" status. The company said earlier this week it would pursue a secured financing instead of an unsecured financing that would not require any sort of collateral.
Energy trader Reliant Resources on Wednesday fell 32 percent after being down as much as 46 percent earlier in the session and 40 percent since the start of the week.
"There's obviously heightened attention following Williams' announcement that they couldn't roll over their bank facility and following Dynegy's announcement that they couldn't mortgage bonds at Illinois Power," said Paul Fremont, an analyst with Jefferies & Co.
"All of which have major bearing since Reliant Energy's debt all matures on a short-term basis."
The energy trading sector is dealing with the fallout from the bankruptcy late last year of energy trading giant Enron Corp. (Other OTC:ENRNQ.PK - News) and ensuing scandals over sham trades.
Sham or "wash" trades are deals in which a company simultaneously buys and sells electricity or natural gas to the same counterparty. The practice can be used to pump up trading volume and revenue.
The increased scrutiny by investors and credit agencies on the sector has forced companies to shore up finances by issuing equity, selling assets and cutting costs.
Reliant Resources was down $1.45, or 32 percent, to $3.05 in Wednesday afternoon trade on the New York Stock Exchange, after hitting a session low of $2.41.
Shares of Reliant Energy were down $2.20, or almost 28 percent, to $5.70, after falling to as low as $4.36.
They are down nearly 59 percent and almost 60 percent, respectively, since the beginning of the week.
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Can you say "free fall?"
However he can't answer how they would go bankrupt if they got rich of California!
I'm very leery of this stock market, but this seems too good to be true.
Wouldn't the bond traders normally force a company in trouble to cut its dividend in order to get new funding??
Reliant and TXU are the only power companies in Texas that still have their rates set by the PUC, and they're going to get them high enough to be profitable; that's a given. This truly looks to me like a stock that has been horribly oversold based on intrinsic value.
Maybe I'm missing something.
Good point.I'd delay a few hours, though.
REI Q2 2002 Financial Release Conference Call
Scheduled to start Thu, Jul 25, 2002, 2:30 pm Eastern
A good friend of mine, who is wiser than I am, bought Chrysler preferred stock when the federal bailout was taking place for that automaker. His thought was that the company would not be allowed to die and when it finally got out of its jam, it would need to pay off the preferred back dividents so that it could offer dividends to common stock holders. I would say that your comment about Reliant, or PG&E for that matter, would imply that the utility is likely to remain in business and so at some point they should want to pay dividends. If things go to heck in a hand basket the preferred stock holders have first rights on any divident funds available. Just a thought. Not sure if Reliant has suspended common or perferred stock dividents, but I'll bet that PG&E has.
Believe it or not, one of my biggest hesitations in buying shares is that I no longer could claim to be a completely neutral observer on the power industry.
They did not get rich off of California. They did, apparently, manipulate the market by moving energy in a non-productive fashion to create shortages and run the prices up dramatically. Unfortunately for their shareholders, the Enron guys made many more bad decisions. The net effect of those other bad decisions was greater than their gains in California. Take all those bad decisions they tried to sweep under the rug in their thousands of bizzare partnerships and stock swaps and you come up with a massive failure of trust. When someone does not trust a trading company, they don't trade with them. So, their business evaporated almost overnight. They were greedy and they believed they were far better at what they did than they actually were.
So, that's how they ripped off California and shortly went bankrupt in a massive corporate-karma backslash.
I know what you mean. Because I sometimes serve as an expert witness I avoid owning electric utility stocks in anything that might be involved in a physical area where I might serve as a consultant. That has lead me to invest in just a few east coast electric utilities. One of my best investments was in GPU after 3-mile Island. Based on articles that I had read, I felt that the damage was being grossly overstated in the media. I more than doubled my money on that one before I sold it.
Houston-based Reliant said it is losing $500,000 a day, and Dallas-based TXU said it is losing $700,000 each day.
Maybe I'm missing something.
Like accurate information from the energy frauds?
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