Citigroup's role as lead agent for Mirant lenders in a $5.3 billion debt restructuring could be clouded by a potential conflict of interest, according to two financiers involved in the deal. The issue, they say, is if the Atlanta-based IPP is forced by Citi and other lenders to file for Chapter 11 bankruptcy protection, the financial services behemoth would be released from making a $344 million payment in an unrelated complex convertible debenture transaction.
James Peters, a spokesman at Mirant, confirms that such a bankruptcy filing would nullify Citi's obligation to make the payment. He declined to say whether Mirant thinks there is a potential conflict of interest. Calls to John Dorans, the Citi official heading up the talks, were not returned. Trevor Houston, another official working on the restructruing, referrred calls to Citi spokeswoman Christina Pretto, who declined comment.
In its battle for survival, Mirant is looking to get lenders to agree to restructure $3.1 billion of bank debt without having to go through a bankruptcy filing. But co-lead agents Citi and Credit Suisse First Boston are urging the bank group to reject Mirant's proposal because it doesn't offer banks strong enough liens over Mirant's assets and because they believe it has a below market structure and pricing (PFR, 6/30). Mirant is looking to get the necessary 100% bank approval by July 15 for the out-of-court restructuring. At the same time the company is asking lenders to approve a pre-packaged bankruptcy filing, which requires approval by holders of two-thirds of the dollar amount of bank debt, or more than half of the banks. Citi and CSFB also reject the pre-pack proposal, say rival bankers.
Some lenders have quizzed Citi financiers over what they see as a potential conflict at the bank, says one lender who also supports Citi's view that the banks should reject Mirant's terms. He says Citi financiers' response is that the two deals fall in different parts of the bank.
According to a regulatory statement filed by Mirant last Monday, the company is short a put option that--if excercised--obligates it to purchase a block of convertible debentures from a speicial purpose vehichle for cash or Mirant stock. Citi, in turn, is obligated to purchase stock from the SPV. However, in the event of a Chapter 11 filing, Citi is released from that obligation, the filing states.