Mirant bank debt up on judge's valuation ruling; Northwest Air bonds off

By Paul Deckelman

New York, July 5 - Mirant Corp.'s bank debt traded a bit higher Tuesday in an otherwise muted post-holiday distressed loan trading session, according to a trader. He said the bankrupt Atlanta-based energy company's paper was helped by a ruling last week by the judge overseeing its restructuring that directs Mirant to re-calculate its valuation.

Elsewhere, Northwest Airlines Corp. bonds were losing altitude in the wake of new problems in its ongoing negotiations with its mechanics union, which moved to pull out of its talks with the Eagan, Minn.-based Number-Four U.S. air carrier.

Mirant's bank debt was seen trading around in the 79 area, about half a point better than previous levels, a trader said, citing the news, which surfaced Friday, that Mirant and its financial counselors, The Blackstone Group, will have to reassess their method of determining Mirant's enterprise value.

That order by judge Dennis Michael Lynn of the U.S. Bankruptcy Court for the Northern District of Texas followed complaints by Mirant equity holders that the previously used methods severely underestimated the enterprise value of Mirant, maybe by as much as $1.74 billion, essentially preventing them from getting any kind of a recovery.

The judge said that rather than merely relying on projected results, Mirant should use a number of different standards in calculating a range of values, including the use of recent financial data.

He further stated that should the top end of the range of valuations be above $10.7 billion, he would consider the shareholders to be entitled at least to some recovery.

Mirant's bonds, which had risen smartly Friday, though in very light, abbreviated pre-holiday dealings, continued to firm on Tuesday. Its defaulted 7.40% notes that were to have come due last year, rose to 85 bid, 86 offered, up from Friday's 83.75 bid, 84.75 offered and well up from 81 bid, 82 offered going home on Thursday.

Meanwhile its 7.90% notes due 2009, which on Friday gained three points to end at 85 bid, 86 offered, added another point to close at 86 bid, 87 offered.

Mirant's 2½% convertible notes were seen perhaps a point better at 81 bid, 82 offered.

Calpine moving ahead of call

Also in the power generating field, a market source noted Calpine Corp.'s 8 ¾% notes due 2007 up half a point, at 79, although another source saw the San Jose, Calif.-based power generator's own corporate 7 7/8% notes due 2008 down two points, at 69.5 bid, while the 8 ½% notes due 2008 issued by Calpine Canada Energy Finance ULC were seen a point lower, at 71. Calpine bondholders were scheduled to hold a conference call on Tuesday, on which Harbert Distressed Investment Master Fund was to outline its reasons for asking for bondholder support as it battles the company over the use of proceeds from the recent sale of its British-based Saltend generating plant.

Northwest down

Northwest Airlines' bonds "were lower, but there was no huge volume on anything," a trader said.

He cited the cumulative effect of "more nasty news - [the company's raising the threat of a possible] bankruptcy, lawsuits, pension problems."

He saw the company's 10% notes due 2006 down a point at 43 bid, 45 offered, and its 8 7/8% notes due 2006 at 59 bid, 61 offered, down from Friday's levels at 63.5 bid, 65 offered.

"The weaker stuff is starting to compress," he said - an apparent indicator that at least some in the market see a workout scenario ahead in the not-too-distant future.

A source at another desk saw Northwest's 7 5/8% notes due 2008 down a point at 43 bid.

Another trader estimated the 10% notes due 2009 at 40 bid, 42 offered, while seeing the 8 7/8% notes due 2006 at 60 bid, 62 offered - two points down on the 10s, and three points lower on the 8 7/8s.

Northwest is trying to cut its annual costs by $1.1 billion, and has asked its mechanics for $176 million in savings. So far, the mechanics have offered no more than $143.5 million - and the union moved Tuesday to end federally mediated contract talks. Such a step would be preparatory to the mechanics going on strike, although the union has not set any kind of strike deadline.

The National Mediation Board rejected the union's request - which mirrored a similar request by the company a month ago - and told the two parties to keep talking.

Traders said that other airline-linked issues were "nowhere" Tuesday.

Winn-Dixie gains

A trader saw Winn-Dixie Stores Inc.'s 8 7/8% notes due 2008 a point better at 65 bid on top of the hefty gains the bonds racked up Friday, on the news that the bankrupt Jacksonville, Fla.-based supermarket chain operator had agreed to sell the first 79 of the 326 stores it hopes to eventually close. It expects to reap proceeds of at least $38 million from the initial sale, which could increase if other bidders emerge with better offers. The stores' equipment and leases will be auctioned later this month.

Collins & Aikman higher

A trader saw Collins & Aikman Products Co.'s 10¾% notes due 2011 up a point from Friday's levels, at 24 bid, 25 offered, although another trader pegged the bankrupt Troy, Mich.-based automotive components maker's senior bonds unchanged at 23 bid, 24 offered.

Collins' bonds went on a wild ride last week, amid reports - which later were confirmed - that the company was having trouble getting the unused portion of its debtor-in-possession financing from its bank lenders.

On Tuesday, a Collins & Aikman spokesman tried to explain why the lenders, with J.P. Morgan in the lead, pulled the plug on providing the second $150 million of its $300 million of DIP money.

"Because we have been successful in obtaining accelerated payments from our customers," he told Prospect News, even following the demise of its structured "fast-pay" programs with GM and other major automakers, the company's estimate of its projected borrowing base indicated that it "wouldn't be able to support the $300 million, but would be able to support the $150 million [i.e. the first half of the DIP loan, which was provided]."

J.P. Morgan's refusal to release the final $150 million - the first tranche, granted on an interim basis, was "exhausted," the spokesman said - put the company into a position where it had to turn to its customers for bridge financing. The $30 million that the customers granted the company on an emergency basis late last month "demonstrates the support we have from our customers," even as the company tries to wade through bankruptcy amid liquidity problems.

He said that Collins & Aikman is negotiating with its customers and with J.P. Morgan "to establish longer-term financing to meet our liquidity needs."

This has not been without its problems. There has been some friction between the company's creditors, including J.P. Morgan, and the customers fronting Collins & Aikman the money, mostly on whether that new loan should be given administrative priority claim status, in effect bumping it ahead of other claimants, such as the unsecured creditors. Even so, the spokesman said, all of the parties, including J.P. Morgan as lead bank and the lending customers, are sitting at the same table trying to cobble together the long-term financing package, which likely will be larger than the $150 million DIP second installment that J.P. Morgan refused to release.

With the bridge finding scheduled to run out sometime around Thursday, there will be a bankruptcy court hearing in Detroit that day on the latest financing efforts.

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