Mirant continues to strengthen on plan; Northwest bonds head skyward

By Paul Deckelman and Sara Rosenberg

New York, Sept. 26 - Mirant Corp. saw the bank debt rally late last week push its way into this week, as levels rose by still another point in response to the recent release of the company's second amended disclosure statement. The bankrupt Atlanta-based power producer's bonds were also seen higher.

Elsewhere, traders were quoting Northwest Airlines Corp.'s bonds two to three points higher, despite a lack of any significant news about the bankrupt Eagan, Minn.-based Number-Four U.S. airline carrier. They also saw bankrupt rival Delta Air Lines Inc.'s bonds half a point higher on the session.

In the automotive sphere, Delphi Corp.'s bonds gave up the gains they notched late last week and ended several points lower on renewed market speculation that the company is, in fact, driving straight toward the bankruptcy courts.

Mirant's 2003 paper was being quoted Monday at 104.25 bid, 105.25 offered, according to a trader, compared to Friday's levels of around 103 bid, 103.75 offered, and Thursday's levels, which were also stronger by a little over a point, of 101.75 bid, 102.25.

Its 2004 paper was quoted at 103.25 bid, 104.25 offered, the trader said, compared to Friday's levels of 102 bid, 102.75 offered, also up by about a point.

Lastly, the company's 2005 paper was quoted at 101 bid, 102 offered, compared to Friday's levels of par bid, 101 offered, which were up by about a half to a full point on that session.

A trader in distressed bonds meantime saw Mirant's 7.40% notes, which were to have come due last year, a point better on the session at 113 bid, 115 offered. He saw its 7.90% notes due 2009 at 114 bid, 116 offered, also up a point.

Looking at the company's convertible debt, he saw the 5¾% notes due 2007 up a point at 107 bid, 109 offered, while its 2½% notes due 2021 firmed to 98.75 bid, 99.75 offered from 97 bid, 98 previously.

The rally in Mirant's bank debt and bonds began last Thursday after it filed its amended plan of reorganization and disclosure statement that reflects its agreement with a number of the key constituencies in its Chapter 11 case.

However, a potential roadblock emerged late Monday, when the Mirant plan came under attack from several quarter; the Environment Protection Agency termed it "fatally flawed," various creditors offered objections, and Mirant's leaseholders asked the court for permission to present their own plan (see related story elsewhere in this issue).

According to the disclosure statement accompanying Mirant's plan, the consolidated business will have $4.28 billion of debt, well down from $8.63 billion at the start of the Chapter 11 cases.

Under the plan, holders of $155.1 million in secured claims will receive 100% recovery in either a 5% five-year secured promissory note, the collateral securing its claim, a one-time cash payment or the right of set-off.

Holders of $6.36 billion in general unsecured claims will receive 96.25% of the new common stock in the reorganized company.

Holders of old equity interests will receive 3.75% of the new common shares in the reorganized company plus warrants to buy 10% of additional new common stock.

And, all Mirant Americas Generation debt obligations will be satisfied in full and its $1.7 billion of long-term debt will be reinstated. In addition, Mirant Americas Generation's $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.

Northwest higher

Elsewhere, traders saw the bonds of Northwest Airlines gaining altitude - a rise they generally attributed to a combination of short covering, as well as investor reaction to early indications that oil prices could moderate, now that Hurricane Rita has passed over the Texas Gulf Coast without doing too much damage to the region's heavily concentrated oil production facilities.

That optimism about oil caused crude prices to initially drop as low as $62.65 per barrel of light, sweet crude on the New York Mercantile Exchange from Friday's $64.19 settlement price, although later in the session, prices headed back upward on market concern that demand for heating oil could soar ahead of the winter months, and that the strengthening economy would also put pressure on supplies. That caused crude to bounce back up to end $1.63 higher, settling at $65.82.

Even so, traders said, short-covering was strong enough to push Northwest's bonds up anywhere from two to three points across the board to around 27, while bankrupt Atlanta-based Number-Three carrier Delta's bonds were seen up about half a point to 17.5.

UAL higher, ATA lower

A trader also saw bankrupt United Airlines parent UAL Corp.'s bonds about a point higher on the session at 13.5 bid, 14.5 offered.

However, he saw the bonds of another bankrupt carrier - ATA Airlines - falling to 10 bid, 12 offered from prior levels at 16 bid, 18 offered, although he couldn't imagine why. He saw no news out on the restructuring Indianapolis-based low-cost carrier.

Another trader saw the company's 13% notes due 2009 and 12 1/8% notes due 2010 fall to 13.5 bid, 15.5 offered, down from 17 bid, 19 offered at the end of last week.

Delphi bonds down, term loan up

Delphi Corp.'s 6.55% notes due 2006 were quoted by a trader as dropping back to 72 bid, 73 offered from Friday levels around 75.5 bid, 76.5 offered, while its 7 1/8% notes due 2029 retreated to 62 bid, 63 offered from 64.5 bid, 65.5 offered previously.

At another desk, a market source pegged the 6.55s down 2½ points at 72.5 bid, and the 7 1/8s two points lower at 62.5. He also saw Delphi's 6½% notes due 2009 fall back to 67.5 bid from 69.75, and its 6½% notes due 2013 dip to 66.5 bid from 68.125 offered.

In bank debt dealings, Delphi's term loan was actually stronger by about a quarter of a point on Monday, despite the new attack of bankruptcy fears.

The term loan was quoted at 102 bid, 102¾ offered, according to a trader, who said that there was "absolutely no reason" for the paper to be up.

As for the company's revolving credit loan debt, that was quoted at 97.25 bid, 98 offered, essentially unchanged from Friday's levels, the trader added.

Delphi has been looking to former corporate parent General Motors Corp. for some sort of financial bailout from the burdensome labor costs it inherited when it was spun off by GM a few years ago, and it 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 also said that a filing would come before Oct. 17 when federal bankruptcy laws will change, becoming less friendly to debtor companies as they will be given less time to come up with a reorganization plan.

Investors have been moving back and forth on the bankruptcy issue for weeks, with one day bringing stronger expectations that a Chapter 11 filing would emerge and the next bringing expectations that a deal with GM will be worked out.

Last week, the company's bonds had first fallen on bankruptcy speculation, but then bounced toward the end of the week after Delphi announced in a Securities and Exchange Commission filing that it still had about $300 million left from its $1.8 billion bank credit line, and after CEO Robert "Steve" Miller seemed to downplay the importance of a bankruptcy filing, saying that he would prefer to work things out without getting the courts involved.

However, Miller was quoted in Monday's Wall Street Journal as saying that "I make a new judgment every morning . . . Do we have enough time?" - comments widely interpreted to mean that the turnaround expert has likely concluded that a bankruptcy might be the only choice the company has.

Adding fuel to the fires of bankruptcy speculation were comments by Deutsche Bank equity analyst Rod Lache, who said that he now thinks that there's about an equal chance that Delphi could file or could reach a bailout agreement with the UAW and GM. Previously, Lache had believed that Delphi, GM and the union would reach some kind of agreement to keep the company out of Chapter 11. However, with few signs emerging from the three-way talks between the two companies and the UAW, he now rates that possibility a toss-up, at best.

"The primary reason for our change of thinking is that there may be a legitimate argument that GM and the UAW would be better off if Delphi files," Lache said in a research note.

Delphi, in seeking help from GM with the burdensome labor costs - heavier than those paid by other automotive parts suppliers - which the company inherited after GM spun it off, is eying the kind of relief that Ford Motor Co. and the union recently gave to Delphi rival Visteon Corp., a former Ford unit. Visteon sought- and got - the transfer of some unprofitable high-labor-cost plants back to Ford.

Delphi shareholders as well as bondholders were dismayed by the latest developments; the New York Stock Exchange-traded shares plunged 47 cents (13.58%) on Monday to $2.99 on volume of 13.9 million, more than double the norm.

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