Mirant settles in after run-up; RCN mulls skipping coupon

By Paul Deckelman, Sara Rosenberg and Ronda Fears

New York, Jan. 15 - Mirant Corp. bank debt steadied Thursday after a surge of volatility earlier in the week that saw the Atlanta-based energy operator's loans run up on Tuesday and dip down on Wednesday; letting all of the dust settle, the levels were seen as basically unchanged on the day, according to a trader.

On the bond side of the distressed market, RCN Corp. bonds were quoted down a point or two as the company said it had not decided yet whether to make a scheduled interest payment or take its chances on getting a better deal out of ongoing restructuring talks.

Late in the day, Mirant's 2003 bank paper was seen at 66 bid, 67 offered, the 2004 paper at 67 bid, 68 offered and the 2005 paper at 78.5 bid, 80 .5 offered, a trader said.

"That's pretty much where it opened [Thursday morning]," the trader added.

On Wednesday though, a different trader had noted that by late day the 2003 paper was seen around 65, the 2004 paper was seen around 66 and the 2005 paper was seen around 80. The trader went on to say that the paper was off by about two points from its recent highs but up about three points the opening.

The debt came in on Wednesday following the company's clarification on the potential initial public offering by its Philippine operations, which basically nixed the idea of an IPO taking place in 2004 as well as the previously stated expected proceeds of $325 million.

The roller-coaster ride began Tuesday, when Mirant's bank debt had headed higher by about four or five points on news that Ed Bautista, president of Mirant's Philippine operations, made public remarks mentioning that the IPO would be expected to raise approximately $325 million and that it may take place this year.

However on Wednesday Mirant issued a news release stating: "Mirant does not anticipate an IPO in 2004 and cannot determine at what point after 2004 such an IPO would be feasible. Mirant remains committed to do the IPO, as required under the Philippines' Electric Power Industry Reform Act (EPIRA), once certain conditions and factors have been addressed."

Furthermore, the energy company said that the $325 million estimate of likely proceeds is outdated and new financial data would not be provided until an in-depth evaluation occurs.

"The delayed deregulation of the Philippine energy market and the privatization of the Philippine National Power Corp. are two fundamental events that would need to be completed before the company would begin to conduct a detailed evaluation," the news release said.

Mirant's bonds were meantime seen little changed on Thursday. Its 8 5/8% notes due 2012 down a quarter point, at 102.25 bid, while its 9 1/8% bonds due 2017 up a quarter point, at 102.75.

Tropical Sportswear languishes

Elsewhere, the major mover in Wednesday's session, Tropical Sportswear International Corp., was seen languishing around the same upper 40s, lower 50s context to which its 11% notes due 2008 had fallen from previous levels in the high 70s, after the Tampa, Fla.-based apparel maker reported a loss in the fiscal fourth quarter versus a year-ago profit. One trader quoted the normally little-traded bonds around 53 bid, while another pegged them several points lower, at 48 bid, 49 offered.

RCN Corp.'s bonds were seen down at least a point or two, to levels as low as 51.5 bid for its 10 1//8% notes due 2010, after the Princeton, N.J. -based provider of video, phone and Internet services said its hasn't made a final decision about whether to make the $10.3 million interest payment due Jan. 15 on those bonds.

RCN said that although it has ample funds to do so, it wants to see the outcome of debt restructuring talks now going on with its bankers and bondholders before committing to pay the coupon or not. The company anticipates being able to convert a substantial part of its debt to equity as a result of those negotiations.

Convertibles market watchers say that some investors in those hybrid securities - mavericks by some accounts, savvy pacesetters by others - are reaching farther and farther down the credit ladder for opportunity to make money. And in some cases it has already begun to pay off, such as with the Alamosa Holdings Inc.'s 6% convertible preferred due 2013 that was born out of its recent debt exchange to avert bankruptcy.

Alamosa convertible zooms

The Alamosa convertible shot up 28 points on Thursday to 455; it was issued about six weeks ago with a par of 250.

"We've been active in those [Alamosa converts] since they came out a month and a half ago, but they have really been busy this week," said a convertible dealer at one of the big shops.

"The preferred was trading at 1,200 over and that tightened sharply because they did a high-yield deal in the 600 range. They were stoked over that, as well as the [fact that the] stock's had a good run."

Alamosa shares have risen from $4 in October when the revised exchange offer was made, and ultimately accepted, to close Thursday up 26 cents, or 4.75%, to $5.73.

The Lubbock, Texas-based company - an affiliate of Sprint PCS that provides wireless personal services in the southwestern and midwestern U.S. - sold $250 million of 8.5% eight-year senior notes at par on Wednesday.

The preferred is a $174.5 million issue created by the company's exchange of its 12½% senior notes due 2011, 13 5/8% senior notes due 2011 and 12 7/8% discount notes due 2010.

In October, Lehman Brothers head of U.S. convertible research Venu Krishna recommended that convertible investors interested in the Alamosa situation should buy the 12 7/8% discount notes due 2010 in order to participate in the exchange and, thereby, ultimately own the new convert.

As a base case, Lehman valued the convertible preferred at 357.36 relative to Alamosa's then-current stock price of $4, modeling it with a credit spread of 1,050 basis points over Treasuries and 45% stock volatility.

The company has the option to pay dividends over the first five years in cash, stock, a new series C convertible preferred or a combination of the three, making it a type of payable-in-kind security. The series C convertible preferred will have similar terms as series B but with a higher conversion price of $4.25.

Since the convertible is already in-the-money and carries a high delta of 89%, it is clearly very stock sensitive. Thus, the uptick in the stock price accounted for 2.8% of the increase in estimated value of the new convertible.

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