Mirant bonds gain on valuation ruling; Winn-Dixie up as buyers for stores emerge

By Paul Deckelman

New York, July 1 - A bankruptcy judge's order that Mirant Corp. and its financial counselors, The Blackstone Group, reassess the method they have been using to determine the enterprise value of the Atlanta-based power generating company sent Mirant's bonds higher Friday in an otherwise dreary, abbreviated pre-holiday trading session, traders said.

Another one of the few issues actually trading around was Winn-Dixie Stores Inc., which announced that it has signed preliminary agreements with about 20 would-be buyers for 79 of the bankrupt Jacksonville, Fla.-based supermarket operator's 913 outlets. The sale of those store assets - essentially, the equipment and the leases, since the company owns relatively few of its own buildings - would put Winn-Dixie about one-quarter of the way toward realizing its previously announced goal of closing, and presumably selling, a total of 326 of its stores as it attempts to reorganize.

Mirant's defaulted 7.40% notes, which were to have come due last year, rose Friday to 83.75 bid, 84.75 offered, from 81 bid, 82 offered going home on Thursday, a trader said, while its 7.90% notes due 2009 did even better, gaining three points to end at 85 bid, 86 offered.

He saw a similar rise in the company's convertible issues, with its 2½% convert up three points at 81 bid, 82 offered, and its 5¾% convert two points better at 82 bid, 84 offered.

At another desk, a trader said that Mirant's bonds were definitely "up a couple" of points, with the 7.90s moving all the way up to 85 bid from prior levels at 82, before coming slightly off that peak to end left at 84.5 bid, 85.5 offered.

Another trader saw a more conservative rise, with the 7.40s going to 82 bid, 84 offered from 80.25 bid, 82.25 offered previously, and its 7.90s rising to 83.5 bid, 85.5 offered from 81 bid, 83 offered.

Yet another trader pegged the Mirant paper "up a couple of points," with the 7.90s at 84.5 bid, 85.5 offered, and the 7.40s at 82.5 bid, 84 offered.

Mirant's delisted, over-the-counter traded shares rose about 12 cents (23.63%) to 63 cents Friday, on volume of 11.4 million shares, about eight times the usual turnover.

The first trader said that the company's bonds, as well as its shares, rose after the judge Dennis Michael Lynn of the U.S. Bankruptcy Court for the Northern District of Texas on Thursday ordered Mirant and Blackstone revise the method they have been using to determine the value of the company.

Equity holders had complained that those methods severely underestimate the enterprise value of Mirant - perhaps by as much as $1.74 billion - thus 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.

"The ruling could allow the equity investors to recoup some of their losses," a trader said, "and so the unsecured paper" - which ranks above the stock in the capital structure but below the company's bank debt - "and the equity are up a lot."

Mirant said on Friday that it would comply with the judge's orders and modify its valuation procedures.

The company has been in bankruptcy since mid-July 2003, battered by the negative power industry dynamics that followed the collapse of Enron Corp. in late 2001. Mirant has not made any projections yet as to when it might emerge from Chapter 11.

Winn-Dixie higher

Bonds of another bankrupt company - Winn Dixie - were also seen firmer, though again, in relatively light, sedate dealings ahead of the 2 p.m. ET close and Monday's July 4th holiday closure

A trader saw the company's unsecured 8 7/8% notes due 2008 as having firmed to 64 bid, 66 offered, "up from the high 50s" previously, on the news that the company had agreed to sell the first 79 of the 326 stores it hopes to eventually unload.

He also saw its real estate-backed pass-through securities - its 7.803% notes and 8.181% notes - each several points higher, at 74 bid, 76 offered and 75 bid, 77 offered, respectively.

"The story came out late in the [abbreviated] day," he said, but he noted that some market players likely knew that something was up and took the company's bonds higher.

Winn-Dixie announced on June 21 that it would shed the 326 stores and eliminate over 22,000 jobs as part of its effort to bounce back from the troubles that forced it into Chapter 11 in February.

Following that announcement, the bonds zoomed up over the next several sessions to the lower-to-mid 60s from prior levels around 50, but the trader said that they had subsequently gone back down into the 50s.

The stores being sold under the agreements announced Friday represent about a quarter of the stores the company is looking to close, and ideally, sell. It will continue in the meantime to try to find buyers for the other 247 stores slated for closing.

In a filing Friday with the U.S. Bankruptcy Court for the Middle of District of Florida in Jacksonville, the company said that it had received stalking horse bids for those store assets totaling $38.7 million in potential proceeds for Winn-Dixie, assuming those bids are accepted. The bids only cover equipment and leases, do not include the purchase of store inventory, and are subject to change.

Other bidders could come forward with better offers on any one of the stores, a group of them or all of them prior to the auction for those properties, which is scheduled to be held on July 18-19 in New York, at the offices of Winn-Dixie's bankruptcy co-counsel, Skadden, Arps, Slate, Meagher & Flom LLP.

After that auction, the bankruptcy court will conduct hearings on July 27-29 to authorize sales of the various properties to the high bidders.

Winn-Dixie said that the buyers with whom it reached its preliminary agreements will continue to operate the 79 locations as grocery stores, and have agreed to hire Winn-Dixie associates - i.e. store employees - who otherwise faced the loss of their jobs.

Winn-Dixie said the first stores will be sold around Aug. 1, and the sale of the 79 should be completed by mid-September, as the company continues its attempts to monetize the other closed properties by selling them to other grocery store operators, or retailers who wish to acquire the space for a similar use.

It reserves the right to reject the leases on those properties, as allowed by the Bankruptcy Code, but said this would only be done as a last resort on specific locations for which it is unable to find buyers.

Winn-Dixie, for decades a fixture in small towns as well as larger communities across the southern United States, envisions operating 587 stores in five southern states plus the Bahamas. It has been forced to retreat from many of its traditional markets due to its inability to compete head-to-head with larger supermarket operators like Publix Stores and with retailing behemoth Wal-Mart Stores Corp., which has incorporated supermarket-like operations into many of its superstores.

Airlines steady

Elsewhere, traders saw little going on in the airline sector, with bankrupt United Airlines' parent UAL Corp.'s bonds continuing to hover around 13.5 bid, 14.5 offered, "not much different than [Thursday]," a trader in distressed securities said. There was little apparent market response to UAL's announcement that it will it submit its reorganization plan for exiting bankruptcy to the U.S. Bankruptcy Court in Chicago some time next month, with an eye toward emerging in the fall from Chapter 11, where it crash-landed in December 2002.

UAL said that around Aug. 1 it plans to submit two key documents spelling out how it will settle claims with lenders and other parties, and detailing its future business model.

The Elk Grove Village, Ill.-based airline carrier envisions holding a hearing in early September on its disclosure statement, as a preliminary step toward winning the approval of its creditors, shareholders and other affected parties.

Foamex lower

In the autosphere, a trader saw Foamex International Inc.'s bonds were down about a point Friday, a trader said, with its 10¾% senior notes at 82 bid, 83 offered, while its 9 7/8% subordinated notes retreated to 41 bid, 42 offered.

The Linwood, Pa.-based maker of foam rubber products for the auto industry and other industrial users announced that its vice president and chief accounting officer, Bruno Fontanot, resigned from the company. The company did not elaborate on the terse one-line sentence.

Collins & Aikman holds

Elsewhere in that sector, Collins & Aikman Products Co. bonds - which one trader described as "a big up-and-down name" on Thursday, was seen little changed Friday, with the trader seeing "nothing at all" going on there.

Another trader quoted those Collins 10¾% senior notes due 2011 at 22.5 bid, 23.5 offered, "off a little," while a third saw them perhaps a point lower at 21 bid, 23 offered.

The Troy, Mich.-based automotive interior components maker's bonds gyrated wildly at lower levels Thursday on revelations by the company that its banks had pulled the plug on the remaining $150 million of its debtor-in-possession funding, which forced Collins & Aikman to scramble to get unsecured emergency bridge financing totaling $30 million from its customer companies. That money is expected to run out around July 7, when Detroit bankruptcy judge Steven W. Rhodes is scheduled to hold a hearing at which Collins & Aikman is expected to outline future financing plans, which could involve a considerably larger tranche of emergency bridge financing provided by the customers in place of its prior borrowing agreements with the banks.

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