Mirant Corp. bank debt plummeted after the company filed for bankruptcy last Monday, but recovered somewhat once lenders began to assess the true worth of their claims, which could include potential net-backs from unfunded letters of credit. The company's $1.125 billion credit facility maturing in July 2005 sunk into the low 50s before recovering about 20 points to the 68-70 range. Market players explained that the majority of claims against the facility were letters of credit. One of the possibilities is that the letters of credit support the company's energy trading book, which could be less of a liability than expected, they said.
The Mirant revolver scheduled to expire this month sunk as low as the 35 38 range before recovering to the 43 45 context. The $450 million revolver maturing in April 2004 was quoted as low as the 361/2 391/2 range before bouncing to the 461/2 471/2 context. Traders explained that the '04 bank debt also benefited from potential net backs from unfunded letters of credit. Traders said the bank debt traded in $5-20 million pieces following the bankruptcy filing. The bank debt claims against Mirant Atlantic Generating (MAG) are now stronger in the 80-82 range. Traders said the MAG facility is worth more because the holders of these debt claims are closer to the assets than the holders of the corporate paper.
The Chapter 11 filing is not the pre-packaged plan the company had proposed alongside its refinancing plan, noted a Mirant spokesman. Mirant was unable to obtain the timely support of its key lenders for its restructuring plan, which created substantial uncertainty in the marketplace, noted Marce Fuller, Mirant's president and chief executive officer, in a written statement. Under the restructuring plan sought by Mirant, the banks would have received extra security including up to $1.25 billion of credit secured by a first lien. Lender claims are now unsecured. One buysider suggested that the banks involved in the refinancing had a minimum security package that they would accept. After failure to reach critical situations with many of the other credits that have been running up against refinancing crises over the last couple of months, these firms were probably more comfortable with holding their ground, he added.