Merrill Lynch sues Reliant Energy for terminating credit line

30 December 2008

Merrill Lynch is suing Houston-based energy provider Reliant Energy for terminating a $300-million credit agreement, a move that could lead the investment bank foreclosing on some of the company's assets.

In a filing with the US Securities and Exchange Commission (SEC) Reliant denied that it is in default, saying the $300-million credit line can be terminated without triggering a default of the additional agreement. "We intend to vigorously oppose the Merrill Lynch action," the company said in the filing.

Reliant terminated the credit facility on 5 December as its board considered strategic alternatives, including selling some or all of the company. In a lawsuit filed 24 December in a New York state court, Merrill insisted that under the credit agreement Reliant's action without consent constitutes default.

If the court agrees with Merrill, the investment bank could have the option of foreclosing on some of the Houston power company's assets, the filing states. Reliant, on the other hand, insists that such action would not have any material impact on the company's wholesale power business.

Merrill said in the suit that the dispute could further complicate Reliant's efforts to sell some or all of its businesses as part of an announced strategic review. Reliant has told Merrill Lynch that it is in talks with "one or more third parties," according to the lawsuit. Reliant Energy declined to comment on the continuing review, which was announced in October. Merrill said it had no additional comment beyond the suit.

Last month, Reliant backed away from financing agreements with GS Loan Partners and First Reserve, citing sufficient liquidity. Its shares had taken a beating after it announced earlier that it was shopping for a buyer as the credit crisis spread. In November the company also said it would sell its contracts for electricity supply and sales of its retail subsidiaries in the Northeast to Hess Corp.