Mirant Corp. loan-only credit default swaps widened 10-15 basis points to 150-160 after the energy company announced it would be entering into a stock repurchase program to benefit shareholders. The company plans to use cash from the sale of its Philippines and Caribbean businesses to return cash to its shareholders. It is also tendering up to 43 million shares of common stock for a purchase price of up to $1.25 billion and entering into a new $700 million term loan to improve shareholder value.
Credit Suisse has committed to fund the loan, according to a filing with the Securities and Exchange Commission. A trader said the asset sales means there will be less collateral backing the loans, causing CDS protection on the debt to widen. Mirant's term loan "B" held steady at 99 3/4. Mirant's 9 1/8% bonds traded down a point to 96 1/2. A dealer said trading was very active in the bonds, adding that he had traded around $40 million of paper. "The bonds have traded down because it is a very shareholder-friendly action they have taken," he said.
The company expects the sale of the Philippines and Caribbean businesses to close by mid-2007. The Philippines business contributed $370 million in adjusted EBITDA in 2005, while the Caribbean business contributed $156 million in adjusted EBITDA, according to a company release. Standard & Poor's placed Mirant and its subsidiaries' B+ corporate credit ratings on CreditWatch with negative implications. Arthur Simonson, an S&P analyst, estimated the share repurchase would reduce its liquidity to $1.2-1.4 billion from $2 billion. "The share repurchases and divestitures are both negative to credit quality and could lead to a downgrade of company ratings," said S&P in a release. A Mirant spokeswoman did not return a call.