Mirant debt up as company emerges from Chapter 11; Calpine rise continues

By Paul Deckelman and Sara Rosenberg

New York, Jan. 4 - Mirant Corp.'s bank debt and bonds were seen stronger Wednesday as the Atlanta-based power generating company finally emerged from Chapter 11, 2½ years after it went in.

Rival power generator and newly bankrupt Calpine Corp.'s bank debt meantime firmed solidly and its bonds continued their rise.

And debt-ridden St. Louis-based cable operator Charter Communications Inc.'s bonds were seen higher as well.

A trader in distressed issues quoted Mirant's bank debt as having gained a point to 116 bid, and saw the company's junk bond and convertible bond debt having risen two points across the board, with Mirant's 7.90% notes due 2009 advancing to 128 bid, 130 offered, and its 7.40% notes that were to have matured in 2004 up a deuce to 126 bid, 128 offered. Its 2½% convertible notes due 2021 rose to 109 bid, 111 offered, while its 5¾% converts due 2007 ended at 119 bid, 121 offered - also up two points.

The company had filed for Chapter 11 in July 2003 with the U.S. Bankruptcy Court in Fort Worth, Tex., after it failed to reach a deal with creditors to restructure its debt.

The company converted more than $6 billion in debt and liabilities into equity under its reorganization. Under the final terms of the company's plan, its bondholders and other unsecured creditors will get 96.25% of the stock of the restructured company, while shareholders - who were originally slated to be wiped out but who fought back in the courts to gain a place at the table - will get 3.75% of the stock, as well as half of the proceeds from pending litigation upon Mirant's exit.

Mirant, since its bankruptcy filing, has cut thousands of jobs from its workforce and has monetized hundreds of millions in assets in order to cut debt.

Calpine better

Elsewhere, Calpine's second-lien bank debt gained close to two points during Wednesday's session, as the whole market in general felt stronger, according to a trader.

The bankrupt San Jose, Calif.-based power generating company's paper closed out the day at 83.25 bid, 84 offered, up from previous levels of 81.5 bid, 82.5 offered, the trader said.

Calpine's bonds - which have been rising steadily since the company's Dec. 20 bankruptcy filing - continued to head northward Wednesday, probably pushed upward by technical considerations related to the credit default swaps market more so than by any fundamental improvement in the company's prospects.

A market source saw Calpine's 9.90%secured notes due 2007 having improved to 82 bid from 80.75 on Tuesday, while its 8¾% unsecured notes, also due 2007, were half a point better at 46 bid. He saw the 8½% notes due 2010 up two points at 84 bid, while its 7¾% notes due 2009 were ¾ point better at 45.75.

Back among the secured issues, the source quoted its 9 7/8% notes due 2011 up 2½ points to 83 bid, while its 8¾% notes due 2013 were two points ahead at 84.

While Calpine's unsecured bonds, at least in theory, should trade pari passu at levels all essentially atop one another, since coupon and maturity are useless factors in figuring out a bankruptcy recovery, fact is that some of the bonds trade as much as 15 points better. Traders attribute this to greater demand for some types of bonds to fulfill settlement on CDS contracts, which function like an insurance policy in protecting debtholders against bankruptcies and other default events - and which require the surrender of the bond to the seller of the contract in order for the holder of the contract to be repaid.

Owens Corning loans trade after gains

Also in the bank-loan arena, Owens Corning's bank debt continued to be actively traded in the 146.5 bid, 147.25 offered range, to where it basically rallied on Tuesday on news that the company filed a plan of reorganization over the weekend, according to a trader.

Under the fifth amended plan of reorganization and disclosure statement, the bankrupt Toledo, Ohio - based insulation maker's bank debt creditors will receive 150.3% recovery in cash if they vote to accept the plan. If they vote to reject the plan, they will receive an amount to be determined by the court in cash and cash-pay senior notes.

Charter rises

Charter Communications' bonds were on the move Wednesday, despite a lack of obvious positive news about the company, which is wrestling with a debt load that approaches $20 billion.

A market source quoted its 10% notes due 2011 having gone up to 55 bid from 53.5, while its 8¼% notes due 2007 rose a point to 99 bid. The company's 9.92% notes due 2011 firmed to 55 bid from 53 previously.

Over the past year or so, Charter has been making intense efforts to bring its big debt load down, even if incrementally. It has also been contending with the impact of several changes of management in the executive suite.

"I don't think that Charter will be able to figure it all out in '06," high yield analyst Aryeh Bourkoff of UBS Investment Bank said of Charter's efforts to right its ship and make substantial progress toward turning its situation around. "But they should be able to make incremental progress on extending some of their bank lines that start to amortize in '07, as well as trying to address their converts, which mature in '09."

At the same time, he said, Charter "is going to have to focus on how to bolster top-line growth in order to improve the quality of its subscriber base, by offering voice [i.e. phone service] and to secure its competitive positioning."

He predicted that "there's going to be sort of a two-prong Charter story in 2006. One is an operational fix-it story which starts to get under way with the new management team. The second is the ability to extend the optionality and flexibility of its capital structure. But I think it's clear at this point that they're not going to be able to grow into that [capital] structure with just operations - they can't generate enough free cash flow to save this company. But there are a number of actions they can employ at the capital structure to improve their timing and flexibility."

Delphi strong

In the automotive sector, Delphi Corp's bonds were seen solidly higher, despite having not much fundamental reason to go up, leading one trader to dismiss the move as mere short covering. He saw the bankrupt Troy, Mich.-based automotive electronics company's bonds (all four issues trade on top of each other as the company undergoes reorganization) as having firmed smartly to 54 bid, 56 offered from 51 bid, 53 offered.

A market source saw Delphi's 6½% notes due 2010 advance to 54.75 bid from 51.25, while its 7 1/8% notes due 2029 rose even more, to 54.75 bid from prior levels at 50.5 bid.

While Delphi announced that it had become a strategic investor and technology provider for Ondas Media SA, the premier European satellite radio company - this on top of an earlier announcement about Delphi being granted a substantial portion of the satellite receiver business for Hyundai Motor America - a trader said that those pieces of news were nice, but in his view did not constitute enough of an impetus for a three-point gain.

"I don't think that's enough to boost that paper, he said, adding: "Lower-rated paper just seems to be in vogue right now."

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