Bob, my thinking is that the preferred is essentially a convertible junior 30 year note with a coupon of 6.5%. As such, if Mirant's credit were investment quality, it should have traded roughly at par or around $50, which is about double of where it trades today (it did trade above conversion price, above $50, until around mid Dec when Moody's downgraded MIR debt.) I assume that Mirant common will recover to, say, double its current value, only if the market perceives that Mirant's credit is back to investment quality -- say, when Moody's restores its investment rating. Therefore, I think the preferred will match a doubling of the common. Thereafter, until the common reaches the mid twenties, the preferred will probably lag. Beyond the mid twenties it will be a one to one match again.
Of course, a move beyond the mid teens for the common is a low probability event IMO, this year.
Kyros |
