Mirant continues rise; Collins & Aikman bonds, debt gain on M&A scuttlebutt

By Paul Deckelman and Sara Rosenberg

New York, Sept. 9 - Mirant Corp.'s bank debt gained another couple of points during active trading on Friday, with investors obviously pleased with the agreement that was reached between creditors and equity holders regarding the company's reorganization.

The bank debt and the bonds of Collins & Aikman Corp. were being quoted higher amid increased speculation that someone could make a bid to buy the troubled Troy, Mich.-based automotive interior components maker out of bankruptcy.

And there was activity in the convertible debt of Silicon Graphics Inc. after the distressed imaging technology company said late Thursday that it would delay filing its Form 10-K for the fiscal year ended June 24.

Bank debt traders saw Mirant's 2003 and 2004 paper at 103 bid, 104 offered, up around three points on the day from the 100.5 bid, 101 offered levels seen at the close Thursday.

The '05 paper was quoted at 101 bid, 102 offered, up nearly two points from the 99.5 bid, par offered levels seen at the close Thursday, traders added.

A trader in distressed issues said that the company's 2½% convertible notes due 2021 firming to 99.5 bid, 100.5 offered from prior levels at 98 bid, par offered. However, he saw Mirant's other bonds - its 5¾% converts due 2007 and its straight 7.40% notes due 2004 and 7.90% notes due 2009 - as unchanged and holding to the higher levels to which they had moved over the past several sessions.

That would leave the 7.40s at 112 bid, 114 offered after having recently moved up from around 104 bid, 105 offered; the 7.90s at 113 bid, 115 offered, up from 105 bid, 106 offered previously; and the 53/4s at 107 bid, 108 offered, up from the recent 101 bid, 102 offered level.

On Thursday, the Atlanta-based energy company announced that it has reached an agreement with its creditors that will lead to an amended plan of reorganization under which $6.5 billion of unsecured debt will be exchanged for 96.25% of new common stock in the reorganized company.

Also, holders of Mirant's subordinated trust preferred securities will receive 3.5% of the common stock and warrants to buy an additional 5% of the new common stock issued under the plan of reorganization.

The remaining 3.75% in common stock will go to the company's current shareholders, who will also receive warrants to purchase an additional 10% of the common stock of the company.

The plan term sheet affirms that all Mirant Americas Generation debt obligations will be satisfied in full and its $1.7 billion of long-term debt will be reinstated. The $1.5 billion of short-term debt and other obligations will be satisfied with common stock in the reorganized parent company in exchange for 10% of the amount owed with the balance to be paid in cash.

Although Mirant still plans to raise the cash through a proposed $1.35 billion capital markets financing at its exit from Chapter 11, it said it still reserves the right to issue new notes directly to the creditors for this portion of their claims.

After the agreement was announced, Mirant's bank debt skyrocketed, with the '03 and '04 paper posting gains of around five points on the day. Levels had also felt stronger during Wednesday's market, as rumors of an agreement had been circulating. By comparison, on Tuesday, the '03 and '04 paper were quoted at 91.25 bid, 92.25 offered and the '05 paper was quoted at 93 bid, 95 offered, the bank debt trader added.

Collins & Aikman jumps

Elsewhere, Collins & Aikman Corp.'s bank debt as well as its bonds also had a stellar day as rumors about the merger and acquisition process pushed the bank loans up close to five points during the session, in the 93 bid, 94 offered context, up from a previous bid level of 88.5, according to a trader.

"It's up on private side info. Rumors are swirling about potential bids on parts of the U.S. assets and bids on the European business," the trader explained.

A bond trader meantime saw the company's 10¾% senior notes due 2011 jump to 41 bid, 43 offered from 37 bid, 38 offered previously, while its 12 7/8% subordinated notes due 2012 firmed to 9.5 bid, 10.5 offered from 8.5 bid, 9.5 offered on Thursday.

Another trader, seeing the senior bonds rise to 41.5 bid 43.5 offered, observed that those bonds had gotten as good as the 43.5 bid, 45.5 offered level intraday before falling back from those peaks to close where they did, still up handsomely on the session.

A trader who saw the Collins & Aikman seniors at 41.5 bid, 42.5 offered, up from 38 bid, 39 offered, cited "a rumor that Wilbur Ross may be in there, and the European operations may be worth more than they anticipated."

Billionaire financier Ross already owns most of its bank debt - about $750 million - and has recently made comments likening the problems of the auto-parts sector to those the steel industry faced several years ago, such as high labor costs and big pension obligations putting an increasing burden on diminishing North American sales. At that time, his WL Ross & Co. investment vehicle conducted a successful rollup of the sagging steelmakers, buying the assets of such once-formidable steel giants as Bethlehem, LTV and Weirton at relative fire-sale prices through the bankruptcy courts, negotiating new, more manageable labor agreements with unions grateful to at least have some of their members' jobs saved from oblivion, and then molding the disparate assets into one strong player, International Steel Group, which he successfully then sold to the world's largest steelmaker, Mittal Steel SA, last year. Ross has also pursued similar rollup strategies in the coal and textile industries, and is considered a likely candidate to consolidate the troubled auto-supply sector as well.

EaglePicher, Intermet drop

Elsewhere in the autosphere, a trader saw the 9¾% bonds due 2013 of the bankrupt EaglePicher Holdings Inc. at 72 bid, 75 offered, down from 75 bid, 77 offered previously, but could give no reason for the drop. He also saw the bankrupt Intermet Corp.'s 9¾% notes due 2009 offered at 36, well down from recent levels at 39 bid, 40 offered.

Delphi revolver gains

And the trader saw no change in the notes of the not-yet-bankrupt Troy, Mich.-based automotive electronics maker Delphi Corp., whose 6.55% notes due 2006 remained at 80 bid, 82 offered, while its 6½% notes due 2009 hung in at 75 bid, 77 offered, its 6½% 2013 notes at 72 bid, 74 offered, and its 7 1/8% notes due 2029 at 67 bid, 69 offered.

Delphi's revolving loan meantime inched upward, bank debt traders said, as investors continue to take a more optimistic attitude towards the company's ability to reach some sort of agreement that would keep it out of Chapter 11.

The traders said the revolver was quoted at 94.75 bid, 95.5 offered, up a quarter of a point on the day. Delphi's term loan, however, was unchanged on the session at 102 bid, 102.5 offered.

"I think there was a story out in some Midwest paper saying that they were going to hold some talks in October, so maybe they won't immediately file for bankruptcy," a trader said.

Delphi is currently looking to former corporate parent General Motors Corp. for some sort of financial bailout, and has warned that it could be forced into Chapter 11 if it does not get concessions from the United Auto Workers union and help from GM.

The company has warned that a filing could come before Oct. 17, when federal bankruptcy laws will change, becoming less friendly to debtor companies.

But with remarks being heard from the UAW that it would prefer to keep Delphi out of bankruptcy, and other small positive indicators, people are starting to feel like the potential Chapter 11 filing is less likely.

Airlines steady

Traders saw little or no movement in the bonds of distressed airline carriers Northwest and Delta Friday, with Northwest's 8 7/8% notes due 2006 seen hanging in around 45 bid, 47 offered, while Delta's 7.70% notes set to come due on Dec. 15 stayed around 22 bid.

Silicon Graphics trades on 10-K delay

In the convertibles market, Silicon Graphics' converts were seen trading around after the Mountain View, Calif.-based imaging technology company said late Thursday that it would delay filing its Form 10-K for the fiscal year ended June 24.

Its 6 1/8% converts due 2011 traded at 76 on Friday, versus a previous range of 73 bid, 83 offered, indicated by one New York-based sellside shop.

In July, Silicon Graphics received a notice of technical default on its 6 1/8s but the company said at that time that it disagrees with the holder's claims and plans to challenge them if the holder accelerates maturity on the issue's $57 million outstanding principal amount.

The company said a holder alleges that the issue's indenture was breached in 2000, when Silicon Graphics sold assets relating to certain former Cray Research product lines to Tera Computer Co. (now called Cray Inc.) without causing Tera to assume the indenture.

"The company is a mess financially. It's trying to restructure its credit lines to keep the lights on," said an analyst, who took another look at the convertibles on Friday after the company announced that it was delaying its 10-K filing.

The company also said its auditor, Ernst & Young, has advised it that its audit report is likely to contain a paragraph about Silicon Graphic's ability to continue as a going concern.

"They are going to get a qualified opinion about whether they can continue as a going concern," the analyst said.

Shares of Silicon Graphics dropped seven cents, or 8.4%, to $0.76.

(Rebecca Melvin contributed to this report)

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