NEW YORK (AP) -- Standard & Poor's Ratings Services said on Monday that it may downgrade NRG Energy Inc. after the power wholesaler announced plans to buy GenOn Energy in an all-stock deal.
GenOn's business risk is weaker than NRG's, so the risk of the combined company will probably be weaker, too, S&P analyst Terry A. Pratt wrote. However, the combined company will benefit from its larger size, Pratt said. GenOn is also a wholesale power provider.
S&P has a "BB-" corporate credit rating on NRG now. That puts it in non-investment or junk territory.
NRG's current rating mostly reflects its exposure to volatile commodity prices, offset by hedging and efforts to reduce the influence of swings in natural gas prices, analyst Aneesh Prabhu wrote.
While NRG is on watch for a possible downgrade, S&P said it would consider an upgrade for GenOn Energy Inc.'s "B-" rating, which is also junk grade.
The offer works out to about $2.20 per GenOn share. The deal would give NRG shareholders about 71 percent of the combined company, with GenOn shareholders owning the rest. The deal needs approval by several regulators, but the companies said they are aiming to close it by the first quarter of next year.
NRG shares rose $1.47, or 8.1 percent, to close at $19.52. GenOn rose 47 cents, or 25.8 percent, to close at $2.29.