NRG Poised to transform itself from a 500lbs pig into a 100lbs ballerina

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Market Price (6/14/2017): $16.47/share; ST-Target: $22/share; NIV: $40/share

On Tuesday, June 13, 2017, NRG (about 32.1GW, excluding GenOn) and debtholders of GenOn Energy, Inc. (GEI) and GenOn Americas Generation (GAG) (together GenOn: some 13.8GW) successfully negotiated a Restructuring Settlement Agreement (RSA), which would allow the orderly separation of NRG and GenOn. Summary of the terms and conditions are as follows:

o   GEI debt holders to receive 100% of the equity of the reorganized GenOn in lieu of debt repayment upon exiting Chapter 11 reorganization

o   GAG debt holders to receive $920 per $1,000 in principal amount of debt, plus accrued interest

o   NRG released from or indemnified for any GenOn Mid-Atlantic (GMA) or Reliant Energy Mid-Atlantic (REMA) claims

o   Dismissal of all litigation against NRG

o   NRG to contribute some $261.3MM upon exit of Chapter 11 reorganization

o   NRG to provide continued shared services at a rate of $7MM per month ($84MM annualized) prior to Chapter 11 emergence, and post Chapter 11 emergence, NRG would provide shared services for two additional months at no charge with 2-one month extensions at the option of GenOn for $7MM per month

·         We believe the RSA is positive for NRG shareholders in NT-to-MT by eliminating some $2.75B in debt and almost $60MM in annual interest expense

·         The RSA also lifts the cloud of uncertainty

·         In our opinion, the RSA signals the potential future direction of the company

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