Bought more MIR Mirant today - surprised the stock did not go UP on the news - The negotiation dance has started for real.
Here's an article on MIR. Essentially the same article appeared on RRI earlier.
The banks that don't want to go along can of coures be bought out of the agreement, either formally, or in a side deal where their loan gets bought after the agreement by one of the other lenders.
AS for the BK threat - yeah, all the executive of MIR want a paycut and have their options go to zero. IF the re-fi, the execs can give themselves bonues.
Here's the reporting of Melissa Davis -
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Mirant Pushes Energy Stocks Into a Funk
By Melissa Davis
Staff Reporter
06/03/2003 02:10 PM EDT
URL: thestreet.com
Mirant (MIR:NYSE - news - commentary) is using its monstrous debt load as a weapon.
The cash-strapped power provider is essentially threatening to file for bankruptcy protection if its stubborn lenders refuse to bend. The company said it needs unanimous support from its bank lenders -- including two current holdouts -- to avoid a prepackaged bankruptcy plan that would hurt all investors except its bondholders.
Mirant is floating a plan that would place bankers and bondholders on equal footing if they provide the $4.9 billion in financing the company needs to avert bankruptcy. The plan includes a $1.45 billion bond swap and provides brand-new security for all creditors involved. But the company, feeling resistance from its bank group, has asked bondholders to go ahead and approve a prepackaged bankruptcy in case its preferred plan falls through.
"After a great deal of analysis, we concluded that this bond debt restructuring, coupled with a concurrent bank debt restructuring, is the best way for all of our creditors to receive full payment for what we owe them, while taking steps to preserve value for our shareholders," said CEO Marce Fuller. "Our strong preference is to do this out of court -- and we are hopeful we can do so."
But the stock tanked on the news. Shares of Mirant tumbled 16%, falling 53 cents, to $2.87. Fresh bankruptcy fears put pressure on the entire merchant energy group, interrupting a strong rally that had doubled Mirant's share price in recent months.
Strong on the Glass
But some, including Blaylock analyst Lasan Johong, viewed Mirant's setback as temporary and predicted a rebound for the stock. He downplayed any real chances of bankruptcy, saying that Mirant is simply taking a "negotiating stance" with its creditors. He expects bondholders to approve both the swap and the prepackaged bankruptcy. And in an effort to avoid a "cram-down" reorganization plan, he believes the bankers will hammer out a deal with Reliant, possibly offering lower interest rates in exchange for shorter maturities that will ensure that the banks get paid off first.
"That's a fairly good compromise," said Johong, who recommends buying the stock but owns no shares himself. "This is a good deal for everybody."
One industry expert compared the situation to another -- also featuring a bond swap and possible bankruptcy -- that turned out favorably for the company.
"It is very similar to what AES (AES:NYSE - news - commentary) did," the fund manager said. This "creates a situation where the banks really have to deal or potentially lose out."
After long and tense negotiations, AES finally landed a deal that saved the company from bankruptcy and sent its shares soaring. The stock, which dipped below $1 last October, has since rocketed above $8 as liquidity fears have abated. The stock was off less than 1%, slipping 10 cents to $8, after Tuesday's news from Mirant.
Fear of Failure
Still, industry veteran Karl Miller remains unimpressed by the sector's gains. Miller is convinced that many energy merchants -- including Mirant -- will ultimately fail.
"The creditors to the power industry are not fixing the fundamental problems," said Miller, who leads an energy-related acquisition firm. "The banks need to take these companies off life support and take their losses."
But for now, negotiations continue. Mirant is offering to replace $1.45 billion worth of convertible debentures and unsecured notes for new senior notes backed by security. Simultaneously, the company is negotiating with its bank group to replace $3.45 billion worth of credit facilities with newly secured revolving and term loan credit lines.
To succeed with its preferred plan, Mirant needs support from 85% of its bondholders and all of its bankers. In contrast, the company needs support from only two-thirds of its bondholders and half of its bank group to pursue a prepackaged bankruptcy.
The bond swap -- which would prevent the bankruptcy -- depends on successful refinancing of Mirant's bank debt. So far, the company has reached no agreements with its bank lenders. Last week, however, it secured an extension of a waiver agreement that allows bank negotiations to continue through July 14. The bond swap offer is scheduled to expire 17 days before then.
************previous report on Reliant RRI *************
Whispers of a Turnaround at Reliant
By Melissa Davis
Staff Reporter
01/17/2003 05:28 PM EST
URL: thestreet.com
Investors are suddenly starting to think more about reward than risk at Reliant Resources (RRI:NYSE - news - commentary) .
The Houston-based energy company -- once viewed as a particularly dangerous bankruptcy candidate -- is now acting like the sector's biggest turnaround play. The company's stock has rocketed from 99 cents to $5.70 in recent months, just ahead of a pivotal $5.7 billion refinancing deadline. Investors appear to be welcoming, rather than dreading, financial discussions that could decide the company's fate.
"The bank markets are a little easier to get capital from than they were just two months ago," acknowledged Jon Cartwright, a bond analyst at Raymond James who nevertheless remains bearish on the sector. "But we certainly don't think the problems are behind the power industry.
"We're adamant sellers," Cartwright said.
For Reliant, the refinancing process could prove to be a wrestling match. To begin, the company's maturing debt -- at $5.7 billion -- is unusually large. Moreover, the company must negotiate with more than 30 lenders battling over acceptable collateral and interest rates. And Reliant already saw its former parent, CenterPoint (CNP:NYSE - news - commentary) , pay dearly for a much smaller financing package last year.
Still, the market is looking to Reliant -- which is attempting the sector's first big refinancing of 2003 -- for signs of improving conditions. Already, the surge in Reliant's stock reflects an optimism that contrasts sharply with the gloomy sentiment felt last summer, when companies such as Dynegy (DYN:NYSE - news - commentary) and Williams (WMB:NYSE - news - commentary) plunged into penny stock territory during negotiations with their lenders. Both companies managed to skirt bankruptcy with last-minute financing deals. But they paid steep prices -- more than 30% interest in Williams' case -- to keep their companies afloat.
Six months later, investors seem less worried about a bankruptcy filing from Reliant.
"It looks like everybody thinks the financing will be in place," said Lasan Johong, a Blaylock analyst who upgraded Reliant's stock from sell to hold when it hit $1.04 three months ago. "If Reliant can get over this hump, it should be in a fairly strong position going forward."
Johong expects Reliant to pay up to 10% interest for its new funding. He also believes the company will be forced to make large, regular payments before the financing fully matures.
The terms "will not be good," he predicted. "But Reliant can probably afford it."
Johong believes Reliant stands a decent chance of securing even more financing than it actually needs. He says the market is valuing the company as if it will both roll over its debt and land additional funding to buy out Texas Genco, a wholesale electric power generating company on which Reliant got an option through CenterPoint.
Reliant has the right to purchase the Texas company at what Johong describes as a severely depressed price.
"There's almost $500 million of value embedded in that option," Johong said. "That's huge for a company with a market value [under] $1.5 billion."
But Cartwright sees little long-term value in Reliant and other companies like it. He instead sees plenty of unattractive risk.
"I'm certainly not risk-averse," he said. "But I like to be able to measure that risk and value the underlying assets -- and I'm not sure anyone can really do that with companies like Reliant."
Cartwright said investors would normally look backwards, checking asset prices at the bottom of the last downturn, for guidance in valuing companies. But the last serious downturn was a quarter-century ago -- when the power industry was still regulated, he stressed.
"The first time one of these large companies goes belly-up and its assets are sold, we'll find out what it's really worth," he said. "And I do believe that bankruptcies are still possible inside this group."
Some experts, like Johong, believe the worst is already over. In fact, Johong has remained stubbornly optimistic throughout the industry's darkest days.
Even when he recommended selling Reliant, for example, he expected the company to survive.
"Now it looks like the bankruptcy scenarios are fairly distant for everybody in the sector -- Williams and Dynegy included," Johong said. "But I've been saying all along there would not be as many bankruptcies as people expect." |
