CHICAGO, May 9 /PRNewswire/ -- Duff & Phelps Credit Rating Co. has
downgraded Reliant Energy's (REI) outstanding first mortgage bonds to 'A-'
(Single-A-Minus) from 'A' (Single-A), senior unsecured debentures to 'BBB+'
(Triple-B-Plus) from 'A-' (Single-A-Minus), Preferred and Trust Preferred
Securities, ZENs and ACES to 'BBB' (Triple-B) from 'BBB+' (Triple-B-Plus) and
REI's commercial paper program to 'D-2' (D-Two) from 'D-1' (D-One).
    Additionally, DCR has reaffirmed Houston Industries FinanceCo, L.P.'s
(FinanceCo) commercial paper program at 'D-2' (D-Two) and downgraded the
related senior unsecured bank facility to 'BBB' (Triple-B) from 'BBB+'
(Triple-B-Plus) following a review of REI's plan to expand its commercial
paper program to $4.44 billion from $1.64 billion.  FinanceCo is a
Delaware-limited partnership established by REI to serve as a financing
vehicle for non-regulated businesses.  Reliant Energy FinanceCo II LP's senior
notes have also been downgraded to 'BBB' (Triple-B) from 'BBB+'
(Triple-B-Plus).
    REI's ratings were placed on Rating Watch-Down following its $2.1 billion
definitive purchase agreement in February 2000 for certain Sithe Energies'
assets.  The ratings have been removed from Rating Watch-Down.
    The increased commercial paper program at FinanceCo will be backed by
$4.44 billion of committed bank credit facilities and will be utilized to
provide interim bridge financing for REI's pending acquisition of 4,276
megawatts of net generating capacity from Sithe Energies for $2.1 billion in
cash.  The bridge debt is expected to be paid down using proceeds from a
non-recourse leveraged lease financing ($1.0 billion) with the balance paid
down with a mix of proceeds generated by REI's upcoming regulatory asset
securitization ($740 million), sale of Latin American assets, as well as the
planned divestiture of certain non-strategic interstate gas pipeline and
distribution assets of Reliant Energy Resources Corp. (Resources).
    FinanceCo's credit ratings are supported at the current level by three
factors:  the ability to repay the temporary surge in commercial paper from
the extraordinary sources of cash outlined above; high cash coverage of
FinanceCo's debt service; and the support agreement provided by REI.  The
support agreement requires REI to commit excess cash from operations after
payment of cash requirements, including maintenance capital expenditures,
interest expense, distributions on trust securities, and preferred dividends
to service debt of FinanceCo.  This obligation ranks senior only to payment of
dividends on REI common stock.  Cash coverage of interest on all FinanceCo
obligations, including the proposed bridge financing, is expected to exceed
4.0 times in 2000.
    REI's ratings reflect the underlying strength of its lower-risk,
U.S.-based regulated electric and gas distribution operations which combined
contribute approximately 80 percent of current operating income.  DCR remains
confident that stable cash flow contribution from HL&P will continue over the
next several years given its growing customer base, competitive rate structure
and the recent adoption of electric industry restructuring legislation in
Texas incorporating reasonable stranded cost recovery provisions.  However,
REI's income from more stable utility business activities is expected to
decline after 2001.  Non-regulated business activities could reach 70 percent
of consolidated earnings by 2004 as a result of the planned divestitures at
Resources, further expansion of REPG's merchant plant portfolio (including the
deregulation of HL&P's ERCOT generation), and a corresponding increase in
energy marketing and trading volumes.
    As a result of the Sithe acquisition and the funding of the final step in
its acquisition of Dutch generator UNA, REI's balance sheet and credit
protection measures will experience some near-term pressure, but will not
imperil REI's liquidity.  Debt leverage, as measured by adjusted total debt to
capitalization, approximately 58 percent at yearend 1999, is projected to peak
at around 63 percent.  (DCR adjusts REI's debt to eliminate $4.0 billion of
reported debt indexed to Time Warner, Inc. common stock, since REI holds
sufficient shares of Time Warner securities to liquidate the debt at
maturity.)  The aforementioned asset sales and other extraordinary
transactions are expected to boost REI's liquidity later in the year,
permitting some reduction of the debt balance.

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