Mirant bounces around as company seeks prepackaged Chapter 11 OK; AMR gains on S&P upgrade

By Paul Deckelman and Sara Rosenberg

New York, June 20 - Mirant Corp. bonds, bank debt and shares were reported bouncing around in volatile trading as the embattled power producer sought the approval of its bank lenders for a prepackaged Chapter 11 filing as a contingency in case current efforts to restructure its heavy debt load out of court prove unsuccessful.

Elsewhere, AMR Corp. bonds were said to have gained some altitude in the wake of Standard & Poor's upgrading the troubled air carrier's debt ratings. And HealthSouth Corp. bonds were seen down several points in the wake of efforts this week by ousted chief executive officer Richard Scrushy to strike back at the company.

But Mirant was clearly the most active name in an otherwise generally sleepy Friday, as the last official day of spring morphed into summer.

The Atlanta-based power generator said that it is now seeking acceptances from its bank lenders for a proposed pre-packaged plan of reorganization - even though it is still hoping to persuade its bondholders to go along with a $1.45 billion exchange offer as part of an out-of-court restructuring (see related story elsewhere in this issue).

Even though Mirant hasn't yet abandoned its out-of-court restructuring efforts and is ostensibly appealing to its bankers to endorse the pre-packaged bankruptcy as a prudent "Plan B" in the event that "Plan A" fails, the fact that the company feels the need to take such a step could be interpreted as an acknowledgment on Mirant's part that the bond exchange offer - which has run into opposition among both bondholders and bankers - is by no means a sure thing.

Bondholders in particular view the swap offer as an illegal "asset grab," and have sued to block it. Mirant's bonds had firmed earlier in the week after a Delaware court scheduled what was termed an "accelerated" trial for their complaint - even though in this case "accelerated" means November or December, months after the exchange in theory would have been concluded (Mirant on Friday said it had extended the bond exchange offer to July 14 from the previous June 27 deadline).

But on Friday, the bonds were all over the map in apparent response to the uncertainty surrounding the likely outcome.

A trader saw "quite a lot of activity" in Mirant. "They were stronger in the early goings and then backed off," although he still saw them firmer on the session even though they were off their highs, quoting the company's 7.40% notes due 2004 at 76.5 bid, 78.5 offered, its 7.20% notes due 2008 at 77.5 bid, 79.5 offered and its 7.90% notes due 2009 at 55.25 bid, 56..75 offered.

Another trader in distressed issues, however, pegged the bonds "down a point or two" on the session, noting that "it was very active; one guy at our shop said levels were changing so fast that he couldn't even quote them to you" while all of this was going on.

A market source concurred that Mirant was seen down at his desk, with the Mirant Americas Generation 7 5/8% notes due 2006 (which along with the parent Mirant Corp. 7.4s are the subject of the exchange offer) dipping to 77 bid from prior levels at 78.5. He also saw MAG's 8.30% notes due 2011 as having eased to 61 bid from 63.5 on Thursday.

Another market source estimated that when all was said and done, Mirant's levels were "all about the same" as they had been going home on Thursday; "they didn't really move."

But at another desk, the 7.4% notes were quoted down about three points, at 74 bid. Mirant Americas' long-dated 9 1/8% bonds due 2031 were seen down about two-and-a-half points, at 56 bid.

Equal volatility was seen on the bank debt side of the ledger, with levels moving all over the place. The company's 2003 bank paper was quoted at 73 bid, 74 offered, the 2004 paper was quoted at 74 bid, 75 offered and the 2005 paper was quoted at 79 bid, 80 offered, according to a trader, who put the tranches down by about a point or two on the day.

However, a different trader put Mirant at basically the same levels on the bid side but higher on the offer side, quoting the 2003 debt at 73 bid, 75 offered, the 2004 at 74 bid, 76 offered and the 2005 at 79 bid, 81 offered.

Equity investors were equally flummoxed by the latest developments; Mirant's New York Stock Exchange-traded shares were down 33 cents (10.65%) to $2.77, on volume of nearly 30 million shares, almost three times the average turnover.

Elsewhere, AMR bonds got a lift after Standard & Poor's said that it had raised its ratings of AMR Corp. and its operating subsidiary, American Airlines Inc., with the corporate credit ratings of each elevated to B- from CCC previously. The ratings were removed from CreditWatch; the outlook, however, is still negative.

Even so, S&P analyst Philip Baggaley wrote in his upgrade message that the action was "based on expected earnings and cash flow improvement as a result of the April 2003 agreement with labor groups on $1.8 billion of annual concessions over the next five years."

While the Fort Worth,. Tex.-based parent of the world's largest airline " remains highly leveraged and vulnerable to any further airline industry revenue deterioration . . . near-term liquidity is adequate, with about $1.45 billion of unrestricted cash," Baggaley added.

AMR's most actively traded issue, its 9% notes due 2012, were quoted at 63 bid, up from prior levels around 61, although one market observer saw the bonds as having been at firmer levels Thursday.

At another desk, American Airlines' 7.80% notes due 2006 were quoted up three points, at 45 bid

AMR's shares were 13 cents better (1.43%) in Friday's NYSE trading, ending at $9.24, although volume of 6.5 million shares was less than half the norm.

Bonds of another troubled airline on the upside Friday, Air Canada's 10¼% notes due 2011 "have been going up lately," a market source said, quoting them as having risen to 39.25 bid, 39.625 offered from prior levels "in the 38ish area."

A trader said Conseco Inc. debt "felt strong," estimating the bankrupt Carmel, Ind.-based insurance and financial services concern's bonds about a point better, after a bankruptcy court approved the reorganization plan of the company's Conseco Finance Corp. unit, whose troubles are widely credited with having dragged its once high-flying parent down.

Conseco's exchanged bonds were quoted at 50.5 bid, while its unexchanged bonds were seen in the 29-30 area (Conseco last year exchanged most of its outstanding bond debt for higher-coupon, longer-maturity bonds; the old bonds trade considerably behind the newer issues).

Laidlaw Inc. bonds "didn't do anything today - but they have been moving up" of late, a market-watcher said, quoting the Burlington, Ont.-based transportation, ambulance and waste disposal company's 7 5/8% notes due 2005 as having moved up to around 53 bid, up from prior levels in the upper 40s. Laidlaw on Thursday said that it had completed lining up its exit financing and expected to emerge from Chapter 11 shortly.

On the downside, Adelphia Communications Corp. bonds "were down a good couple of points," one participant said, quoting the bankrupt cable operator's 10¼% notes due 2006 and 7 5/8% notes due 2009 at around 60-60.5, both off about a point-and-a-half on the session.

And HealthSouth bonds were "weak across the board," down two-to-three points, although on light volume, a trader said. He saw no fresh news out on the troubled Birmingham, Ala.-based provider of rehabilitation and diagnostic imaging services, although he noted that the company does have a bank agreement that's scheduled to expire this weekend, unless it can get the lenders to give it an extension while it attempt to straighten out its troubled finances.

HealthSouth's 10¾% subordinated notes due 2008 were seen down three points, at 51 bid. Its 6 7/8% senior notes due 2005 were likewise quoted down four points, at 75.5. At another desk, its 8½% senior notes due 2008 and 7% seniors due 2008 were seen at 70 bid, 74 offered.

The company was further rocked during the week by a lawsuit brought by former CEO Richard Scrushy, who alleged in his complaint that the company's board - on which he still sits, even though the board deposed him as CEO earlier in the spring - had systematically excluded him from its deliberations, a charge the company denies.

Scrushy - not yet indicted in the government's ongoing probe of massive alleged accounting fraud at the company but reported under investigation - also offered to testify as to what he knew about HealthSouth's finances to a Congressional committee looking into the mess, in exchange for use immunity, meaning prosecutors could not use any information he provided in his testimony against him. But he was rebuffed, with the committee saying it would do nothing that might jeopardize the Justice Department's investigation of HealthSouth and Scrushy.

Global Crossing Ltd.'s bank debt traded around 22½ on Friday. XO Communications Inc., controlled by financier Carl Icahn, previously announced that it is prepared to launch a tender offer for the bank paper at 21, but market talk is that the offer by Singapore Technologies Telemedia Pte. Ltd. to buy the company, which was in place before the Icahn offer emerged, is pushing the paper up a little bit, according to a trader.

In order for the XO tender offer to occur, the purchase agreement with Singapore Technologies must be terminated - something the bankrupt Bermuda-based international cable operator so far is reluctant to do.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.