Mirant Chapter 11 drags on bonds; Loral files for Chapter 11 and rises on the news

By Carlise Newman

Chicago, July 15 - Mirant was the focus on every distressed trading desk Tuesday after the company announced close to midnight Monday that it had filed for Chapter 11 bankruptcy protection due to inability to agree with its bank lenders on a restructuring plan.

Mirant filed in the U.S. Bankruptcy Court for the Northern District of Texas, Fort Worth Division. In addition, the company has obtained a commitment, subject to court approval, for $500 million in debtor-in-possession financing.

A trader said Mirant's bonds "got hit pretty hard, but then came back pretty good."

Mirant Americas Generating's 7 5/8% notes due 2006 rose to 71 bid, 72 offered from prior levels in the high 50s, low 60s on Monday, a trader said.

Another trader seconded that, adding that "the bonds were all over the place."

Mirant Corp.'s 7.9% notes due 2009 "tumbled to around 40 bid from solidly higher levels" in the low 50s on Monday, a trader said, adding that he'd seen the notes at about 52 bid early Monday. The 8½% notes due 2021 were seen falling to 45 bid, 48 offered, from levels in the mid-50s on Friday.

He added that all Mirant bonds were heard to be trading flat or without accrued interest.

Mirant's 2003 bank debt traded in the 30s most of the day, "probably around 38 bid, 40 offered now," a trader said, far lower than Monday, when it was seen trading at 56 bid. The 2005 paper traded in the mid-50s, he said, down from Monday's levels of 63 bid, 64 offered.

Along with its Chapter 11 filing, Mirant is terminating its offers to exchange its 2.5% convertible debentures due 2021 and its 7.4% senior notes due 2004. Mirant Americas Generation, LLC is also terminating its offer to exchange its 7.625 % senior notes due 2006. In accordance with the terms of the offerings, Mirant will instruct the exchange agent to return the notes, which were tendered for exchange, to their respective tendering bondholders.

"Although we received broad support from the company's creditors on our restructuring plan, failure to obtain the timely support of our key lenders created substantial uncertainty in the marketplace about the outcome of these discussions," Mirant's president and chief executive officer Marce Fuller said in a news release. "This, in turn, put a strain on our liquidity and threatened the feasibility of our business plan. Add to this, uncertainty about the timing of the recovery in power prices and a slow economic recovery in the U.S., and it became clear that a comprehensive financial reorganization was the best approach for our stakeholders."

"This could work out for them if they could get everyone to work better together, obviously," one market source commented. "I don't think there's a lot of concern about what's going to happen to them after bankruptcy. But it really depends on the restructuring plan. There's a lot of speculation about what that will look like and we know now it's not going to be the same as the old one."

"I think the banks have learned their lesson from past bankruptcies. They're more hesitant now," a trader added.

Also on Tuesday, Loral Space & Communications Ltd. filed for Chapter 11 bankruptcy-court protection as part of an agreement to sell its six North American telecommunications satellites to Intelsat Ltd. for $1.1 billion in cash.

Loral's bank debt traded in the mid- to high 90's Tuesday, a trader said. Last time Loral's debt traded was "months ago," and at that time it traded in the 80s.

"There's an idea that the bank debt will be paid off," the trader said.

Indeed, Loral said in a news release that most of the proceeds from the sale of the North American satellites will be used to repay all $959 million of its outstanding secured bank debt. The transaction is expected to close within four to six months, pending Bankruptcy Court and regulatory approval, according to a news release.

Loral's 10% notes due 2006 were up 4¾ points to 57 bid, a trader said. However, another desk saw the notes at 50 bid.

The Chapter 11 filing, made in the U.S. Bankruptcy Court for the Southern District of New York, will enable Loral, a satellite company based in New York, to sell the six North American satellites "free and clear of any encumbrances" according to the release.

In addition, Intelsat has agreed to order a new satellite from Loral and will make a $100 million down payment on that order upon closing of the sale of the North American satellites.

Loral said it believes that it has adequate cash on hand and cash flow from operations to continue normal operations and customer support, and has decided not to obtain DIP financing at this time.

In other news, "WorldCom bonds were higher again today," a trader said. The bonds opened at 30¼ bid, 31 offered and traded up at 301/2, closing the session at 30¼ bid, 31¾ offered.

"That's the highest they've been in weeks, maybe months," the trader said.

After the close Tuesday, the Ashburn, Va.-based telephone company said revenues in May dropped from the previous month, but operating income rose slightly. WorldCom said revenues in May fell to $2.03 billion from $2.05 billion in April. Revenues have fallen or stayed roughly flat each month since it filed for bankruptcy last year amid an $11 billion accounting scandal.

Operating income in May rose to $116 million from $114 million in April.

The company said it had capital spending of about $90 million. It ended May with $4.2 billion in cash, an increase of about $500 million from the start of the month.

In the airline sector, the mood was "pretty subdued," a trader said. American Airlines' 9 % notes due 2012 were quoted at 70 bid, 72 offered, unchanged from recent levels.

© 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.