Ahead of the Bell: Reliant Energy downgraded

Analyst Brian Chin downgraded the stock to "Hold" from "Buy" and lowered his target price to $10 from $23 based on the weighted average probability that Reliant's retail business fails due to collateral requirements. That could threaten its wholesale generation business.

Chin also changed his risk rating on the stock to "Speculative" from "High."

"Reliant's $1 billion capital raise from non-traditional financing sources highlights how credit market turmoil has raised near term working capital challenges for what we recently believed was a cash-rich, healthy company," Chin wrote in a client note.

Reliant on Monday announce it had arranged for $1 billion in additional capital consisting of a commitment for a $650 million term loan from GS Loan Partners and an agreement to issue $350 million of convertible preferred stock to the energy private equity firm First Reserve Corp. The company also reduced its outlook, sending its stock to a 5-year low of $4.69 in Tuesday's trading.

Reliant shares closed down $2.73, or 27.1 percent, at $7.35 on Tuesday.