Mirant gains on bankruptcy agreement; Delphi bonds and debt bounce off recent lows

By Paul Deckelman and Sara Rosenberg

New York, Sept. 8 - Mirant Corp.'s bank debt continued to rally on Thursday and its bonds rose as well as recent rumors market rumors proved true with the announcement of an agreement between creditors and equity holders.

Elsewhere, Delphi Corp.'s bonds firmed smartly after having recently taken a drubbing and its bank debt was better as well - some said the loans came along for the bonds' upside ride, while others had their own explanations.

The news Wednesday that Northwest Airlines Corp. and its striking mechanics' union would go back to the bargaining table proved to have only a fleeting impact on the troubled Eagan, Minn.-based Number-Four U.S. based airline carrier's bonds, which on Wednesday recouped some of their earlier losses on the news - but which went no further upward on Thursday, and in fact, again gave up ground. Fellow troubled carrier Delta Air Lines Inc.'s bonds were unchanged despite restructuring moves announced Wednesday and the official closing Thursday of its sale of its Atlantic Southeast Airlines Inc. subsidiary.

Mirant's 2003 and 2004 bank debt paper were quoted at 100.25 bid, 101 offered Thursday, up around five points on the day, and its 2005 paper was quoted higher at 99.5 bid, par offered, according to a trader. By comparison, on Tuesday, the '03 and '04 paper had been quoted at 91.25 bid, 92.25 offered, and the '05 paper had been at 93 bid, 95 offered, the trader added. On Wednesday, the 2003 loan had moved up to 95.5 bid, 96.5 offered, a three-point gain from Tuesday's levels.

The same kind of sharp appreciation was also seen in the bankrupt Atlanta-based energy provider's bonds. A trader in distressed bonds, saying that Mirant saw "a bit of activity today," saw its 7.40% notes that were to have come due last year as having shot up to 112 bid, 114 offered from recent levels around 104 bid, 105 offered, while its 7.90% notes due 2009 firmed to 113 bid, 115 offered from 105 bid, 106 offered previously.

He also saw the company's 2½% convertible notes due 2021 having risen to 98 bid, 99 offered from 94 bid, 96 offered previously, while its 5¾% converts due 2007 gained handsomely to 107 bid, 108 offered from 101 bid, 102 offered.

At another desk, however, a trader saw the Mirant bonds starting out the session a little higher and thus only rising about four points on the session to get the 7.40s up to 113 bid and the 7.90s up to 114.

Another trader agreed, seeing the 7.40s only gaining around 4½ points to close at the 112 bid, 114 offered area, while the 7.90s were just 3½ points ahead to 113 bid, 114 offered, and the converts were "up pretty big."

On Thursday, Mirant formally confirmed what junk bond and bank debt marketeers had already surmised - announcing that it had reached an agreement with its creditors that will lead to an amended plan of reorganization. Under that plan, $6.5 billion of unsecured debt will be exchanged for 96.25% of the 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 the company 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.

Delphi debt gains

Apart from Mirant, Delphi's bonds were seen on the comeback trail Thursday, while its bank debt also moved up by about half a point, with some bank debt observers pointing to the high yield market gains as the impetus, and others pointing to the company's decision to eliminate its dividend and a more optimistic attitude among debtholders towards a potential financial bailout by former corporate parent General Motors Corp.

A trader saw Delphi's 6.55% notes due 2006 up 3½ points to 81 bid, while its 6½% notes due 2009 were half a point better at 74.5, its 6½% 2013 notes a point ahead at 72.5 bid, and its 7 1/8% notes due 2029 two points better at 68.

Another trader pegged the 6.55s up four points to 80 bid, 82 offered, saw the 6½% 2009s also four points up, at 75 bid, 77 offered, the 2013 61/2s at 72 bid, 74 offered, three points up on the day, and the 7 1/8s up a deuce at 67 bid, 69 offered.

In the bank debt market, Delphi's revolver was quoted at 94.5 bid, 95.25 offered by day's end, up from 94 bid, 94.5 offered on Wednesday, and the term loan was quoted at 102 bid, 102½ offered by day's end, up from 101½ bid, 102 offered early in the Thursday session, according to various traders.

"Short covering in the high-yield market pushed it up," one trader said.

However, a second trader pointed to the dividend news and said that he heard rumblings that the United Auto Workers union had remarked that it would prefer to keep Delphi out of bankruptcy - which, of course, is good news for investors.

On Thursday, Delphi announced the elimination of its quarterly dividend of 1½ cents per share on its common stock for the remainder of the year so as to conserve liquidity during the current restructuring discussions surrounding its U.S. legacy liabilities and the challenging U.S. production volumes from its largest customer, former parent GM.

The troubled Troy, Mich.- based automotive electronics manufacturer is currently looking to the world's largest carmaker for some sort of financial bailout, and has warned that it could be forced into Chapter 11 - perhaps before mid-October - if it does not get concessions from the UAW and help from GM.

Many had thought that Chapter 11 was a very unlikely course of action for the company, but over the past two weeks or so bankruptcy concerns have flared up as media reports have been saying that UAW wouldn't go along with all the concessions being sought Delphi and by GM, which is holding its own separate talks with the union in hopes of being able to cut its healthcare and pension costs.

Delphi has said that in weighing its options on what to do, it would take into account the coming toughening up of federal bankruptcy laws to make them less debtor-friendly. Those changes go into effect Oct. 17, and market scuttlebutt says Delphi could file before then just to get its case handled under the easier current procedures, which in the corporate sphere give the debtor companies more time to come up with a restructuring plan and gain creditor approval.

Northwest resumes fall

Bankruptcy speculation continues to swirl meantime around Delta Air Lines and rival Northwest, and has beaten their respective bonds down to deeply distressed levels. Northwest bonds had come off those lows to end only slightly lower on the day on Wednesday, helped by the news that it would head back to the bargaining table with the Airline Mechanics Fraternal Association, which struck Northwest on Aug. 20.

But that momentum proved to be short-lived, as the bonds once again headed lower on Thursday after an inconclusive half-hour bargaining session.

A trader said that Northwest's 8 7/8% notes due 2006 lost two points on the day to end at 45 bid, 47 offered. Its 9 7/8% notes due 2007 were also two points lower, at 36 bid, 38 offered, while its 7 7/8% notes due 2008 dropped to 32 bid, 34 offered from 34 bid, 36 offered previously, and its 10% notes due 2009 ended down a pair at 33 bid, 35 offered.

Even as it resumed talks with the mechanics, Northwest warned them that it will now demand steeper labor cost cuts than those that prompted the union's 4,427 mechanics, aircraft cleaners and custodians to walk out in the first place. Initially, the airline demanded that they accept 25% pay cuts and the layoffs of some 2,000 workers in order to save the company $176 million annually as part of a move to get $1.1 billion in permanent labor concessions from its various employee groups.

However, Northwest warned in its letter to the union Wednesday that "our last best offer which was presented to you on August 18 was based on economic circumstances that no longer exist today," given the sharp rise in fuel prices since then.

Northwest has been flying since the strike's beginning using a mixture of management mechanics, replacement workers and outsourcing - and said earlier in the week that it would begin hiring permanent replacements by Sept. 13 unless a deal was reached.

Delta little moved

Meanwhile, Delta's bonds were seen little changed on the day, with its benchmark 7.70% notes due on Dec. 15 at 22 bid, its 7.90% notes due 2009 at 15.25 bid, and its 8.30% notes due 2029 also at 15.25.

The Atlanta-based Number-Three carrier is widely considered to be the financially weakest of the major airlines not already in bankruptcy, and is seen as a likely Chapter 11 candidate, despite its desperate efforts to boost liquidity and stay out of the courts.

One of those efforts was the announcement several weeks ago that Delta had sold its Atlantic Southeast Airlines regional carrier to another one of its regional affiliates, Skywest LLC, in a deal valued at $425 million, including about $330 million in up-front cash. That deal officially closed Thursday.

Delta also announced plans Wednesday to sell 11 of its jets to a freight carrier for $190 million, to drastically downsize its service to and from its Cincinnati hub, shedding 1,000 jobs in the process, and to realign its service to focus more on international routes rather than the increasingly competitive and margin-challenged domestic airline business.

Despite those changes, many airline watchers see the debt-ridden Delta merely making the preparations for an inevitable filing, rather than effectively staving off the need for a Chapter 11 reorganization.

There was no change seen Thursday in United Airlines parent UAL Corp.'s bonds, which fell to 11 bid from prior levels at 14 on Wednesday, after the bankrupt Elk Grove Village, Ill.-based Number-Two U.S. carrier formally submitted its plan of reorganization.

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