Mirant Americas Generation's (MAGI) $300 million bank debt has climbed nine points to the 98-99 context from the 90-91 context in the last four weeks and could climb further. A 13 point jump that brought the bonds into the 103 range has investors betting that a dispute between the unsecured creditor committees has been resolved and MAGI's credit will be paid off at par plus accrued interest. "People are getting bullish on the MAGI getting reinstated," a trader said.
MAGI could go up to 103 in the near term, a trader said. If repaid with accrued interest the value could be about 107-109. "To the extent MAGI trades up, it reflects a certainty that a deal is getting done. To the extent that certainty is reflected, Mirant Corp. should trade up too," the trader said. MAGI is a wholly owned subsidiary of Mirant.
So far creditors have been unable to agree on a restructuring plan since filing for bankruptcy in July 2003 (LMW, 7/21/03). In addition to the $300 million of bank debt, MAGI also has $2.5 billion in bonds. Mirant and MAGI share certain assets that need to be allocated among lenders, the trader said. "That's the inter-creditor issue," he noted. In addition, there is the question of whether some equity in MAGI is going to be passed along to Mirant. According to the trader, Mirant was trying to keep some equity in MAGI without paying back at par plus accrued.
These arguments have gone on through the entire bankruptcy process and could still be ongoing, the trader noted. "The only reason why we think it is [not still going on] is because someone started buying MAGI. Up until three or four weeks ago all the MAGI bonds traded at the exact same price point, in the mid-to-high 80s."
A Mirant spokesman declined comment on whether an agreement has been reached. He explained though that after Mirant filed for bankruptcy, three committees were formed among unsecured creditors to discuss in good faith a restructuring plan. The committees were the MAGI creditors committee, the corporate creditors committee and the equity committee. The MAGI committee comprises mainly bondholders, the corporate committee has mainly bank debt-holders, but also some bondholders.
Lenders on the MAGI creditors committee are the California Public Employees Retirement System, Elliot Associates, J.P. Morgan, Lehman Brothers, Royal Bank of Scotland, Wells Fargo Bank and Mackay Shields. Lenders in the corporate committee are Citigroup, Appaloosa Management, Wachovia Securities, Hyperion, HSBC and Deutsche Bank.
