Oct. 6 (Bloomberg) -- Reliant Energy Inc., the owner of power plants in nine U.S. states, said it will explore strategic alternatives after cutting its profit projections and losing more than half of its market value last week.

Morgan Stanley and Goldman, Sachs & Co. are financial advisers for a review of all options to enhance stockholder value, Houston-based Reliant said today in a statement. The company didn't specify the alternatives that will be considered and said it won't disclose developments unless and until its board approves a course of action.

Chief Executive Officer Mark Jacobs is looking for ways to revive Reliant's retail power business in Texas, formerly Houston's monopoly utility, after losing customers to competitors. The company said last week that it arranged $1 billion in new financing to support the business. Reliant also lost sales last month when Hurricane Ike knocked out service to more than 2 million homes and businesses in the Houston area.

``Everyone wants them out of retail, which is a drag on earnings and has a huge collateral requirement,'' said Andy DeVries, an analyst at CreditSights Inc. in New York who rates Reliant debt ``underperform'' and owns none. ``They won't get any money for it, but if they do that, the stock and bonds will rally.''

Reliant dropped 34 cents, or 6.1 percent, to $5.25 in New York Stock Exchange composite trading. The stock has tumbled 80 percent this year, including a 54 percent plunge last week.

Collateral Demands

Retail supply of electricity at competitive prices places collateral demands on Reliant not shared by other power producers, Carl Blake, an analyst at Gimme Credit in New York, said in an Oct. 2 note to clients.

The company's new financing, announced Sept. 29, will cost about 3.5 times as much as the agreement it replaces, Blake said. Reliant is ending an arrangement whereby it pays Merrill Lynch & Co. to provide guarantees and post collateral for power purchases and other transactions in its retail business.

Reliant has ``adequate liquidity to support the business,'' Jacobs said in today's statement.

The company's power stations, which include cheaply fueled, coal-fired plants in the Northeast, have ``potentially significant value,'' Wachovia Capital Markets LLC analyst Samuel Brothwell said today in a note to clients. Reliant's plants can produce enough power for about 12 million average U.S. homes.

$30 a Share

Gordon Howald, an analyst at Calyon Securities in New York, said the plants are worth the equivalent of $30 a share.

``There's value in power plants,'' said Howald, who rates Reliant shares ``neutral'' and owns none. ``The question is, what's someone willing to pay, and is capital available to buy them? It's a difficult time to be doing that.''

At the same time the power producer's shares have been dropping, the perceived risk of default on Reliant's bonds has jumped. Credit-default swaps on Reliant debt climbed to 953.9 basis points today from 900.4 basis points Oct. 3, according to CMA Datavision. Prices for the swaps have more than doubled since Sept. 12.

Credit-default swaps are financial instruments used to speculate on a company's ability to repay debt. They pay the buyer face value in exchange for the underlying securities or the cash equivalent should a borrower fail to adhere to its debt agreements. A price increase indicates deterioration in the perception of credit quality.

Investors pay 1 percent of the value of a bond or loan being insured for each 100 basis points in price for credit- default swaps. One basis point on a credit-default swap contract protecting $10 million of debt from default for five years is equivalent to $1,000 a year.

To contact the reporter on this story: Jim Polson in New York at jpolson@bloomberg.net.

Last Updated: October 6, 2008 16:26 EDT