News & Analysis

First Reserve receives $35m break-up fee

Publicly listed energy producer Reliant Energy has concluded the termination of a $350m agreement for a sale of stock to the energy specialist. Reliant also called off a $650m loan agreement with Goldman Sachs.

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Reliant Energy has paid a $35 million termination to First Reserve Corporation after terminating an agreement to sell the energy-focused private equity firm $350 million of convertible preferred stock.

The Houston, Texas-based electricity producer also chose not to proceed with an agreement for $650 million in senior secured term loans from Goldman Sachs’ GS Loan Partners.

Both agreements were penned on 29 September and called off on 26 November.

Reliant: paying out for break-up

Earlier in September, Reliant revised its retail profit outlook downward by $300 million to $350 million largely due to the effects of Hurricane Ike on the Texas coast. The company’s open wholesale contribution is expected to decline by roughly $480 million for 2008.

The financings were intended to raise capital to facilitate the unwinding of a credit-enhanced retail structure with Merrill Lynch. However, Reliant instead chose to exit its commercial and industrial business in order to raise capital.

“We believe Reliant has adequate liquidity without the GS Loan Partners and First Reserve financings and this course of action creates more value for our shareholders,” Mark Jacobs, Reliant's president and chief executive, said in a statement.

The company is reviewing strategic alternatives that may include the sale of all or substantially all of Reliant Energy as well as the sale of some or all of its retail business, the company said in the statement.

First Reserve has reportedly reached an interim close on $8 billion for its 12th energy fund targeting $12 billion. The fundraise already eclipses the firm’s 11th fund, which closed on nearly $8 billion in 2006 and is the largest energy fund raised to date.

In February, First Reserve agreed to buy CHC Helicopter, the world’s largest provider of helicopter services to the offshore oil industry, for C$3.7 billion (€2.3 billion; $2.9 billion). It was the largest-ever LBO in the oilfield services industry, according to a statement from First Reserve and CHC. First Reserve has invested in the energy sector for 25 years.