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Gold/Mining/Energy : Big Dog's Boom Boom Room -- Ignore unavailable to you. Want to Upgrade?

To: KyrosL who wrote (24180)	6/28/2003 3:10:19 PM
From: Bearcatbob	Read Replies (2) \| Respond to of 206093

While we do not know how this will turn out. It amazes me that prices we once would kill for are now scorned. I suspect quality EPs will do well and that there will be lots of drilling. Look at it this way - the great XTO crosstimbers.com hedged gas at less than $4.00 this year. That should tell something about how good the current price really is. Bob

To: KyrosL who wrote (24180)	6/28/2003 8:28:58 PM
From: jim_p	Read Replies (1) \| Respond to of 206093

GLOBAL INVESTING: Bank snags threaten an electric shock By John Dizard Financial Times; Jun 27, 2003 The possible collapse of an out-of-court restructuring for Mirant could put the recovery in electricity producers' stock and bond prices at risk. This has come as a surprise not only to me (I thought Mirant's offer, while tweakable, would work) but to the bondholding community and the industry. The post-Enron collapse of the electricity industry has been followed this year by a dramatic recovery for its most troubled names. Among those back from the dead are Dynegy (stock up more than 240 per cent), Williams (up 179 per cent), AES (up 114 per cent), and Calpine (up 94%). This followed a number of nail-biting rollovers of bank debt that seemed to say the banks were too scared to pull the plug on the energy debtors. By late this spring, last year's talk about a meltdown had died down, particularly after a contentious rollover of Reliant's bank debt. Mirant was assumed to be a relatively easy candidate for restructuring. It has a bank facility maturing next month, along with some awkward bond maturities over the next several years, and a convertible deal that could lead to serious stock dilution next summer. But the company was not seen by the authorities or Wall Street to have as severe problems with accounting integrity as others in the industry. Not all Mirant's assets have been pledged as collateral (yet), which gives the company a carrot for banks and bondholders to roll their maturities forward. The company has a lot of coal-fired generation capacity, which has good profit prospects in a period of rising gas prices. Mirant hired the Blackstone Group, which has a well-regarded restructuring practice and none of the conflicts of interest that have plagued other investment banks, to devise a workout plan that did not require a Chapter 11 bankruptcy filing. The key to the plan was pledging assets held in a subsidiary, Mirant Americas Generating, or "Maggie" to the banks and bondholders at the corporate level. The company was fairly certain it could hock the subsidiary's assets without seeming to injure the interests of the subsidiary's own creditors. It also thought the banks would not mind sharing the collateral with bondholders. Guess not. The Maggie bondholders were the first to attack the plan openly, saying the company was pledging assets needed to ensure repayment. While the judge hearing their claim refused to block the exchange offer, a trial has been scheduled for November or December. It now looks as though the banks have no intention of sharing collateral on equal terms with the bondholders. They are not going along with the deal. At first, the company and the bondholders assumed this was a negotiating position. Now they are beginning to see that the banks, particularly Citibank, are not kidding. So, along with the restructuring proposal, the company included a "prepack" Chapter 11 proposal. The idea was that if it was not possible to get all the banks to agree on the exchange offer, as well as 85 per cent of the bondholders, then it might at least get two-thirds of them to accept a well-ordered bankruptcy. The company did not really think the "prepack" would be necessary; it saw the economics of an out-of-court workout as so attractive as to be irresistible. An analyst at Fitch, the ratings agency, wrote: "The incentives are high for the exchange offer to be accepted." So far the banks have not budged from their refusal to share collateral. They have leaked word that they believe the choice is not between the company's exchange offer and the "prepack" but between the "prepack" and an uncontrolled Chapter 11. This Masada-like attitude has only begun to sink in on Wall Street. The bond market, which valued Mirant's 2004 paper in the high 70s a week ago, is now pricing it in the low 70s. The prospect for an uncontrolled Chapter 11 is truly frightening. Under a prepackaged filing, the company and its creditors approach a Federal bankruptcy judge with a bankruptcy petition in hand. Both sides have already agreed the terms, based on a mutual understanding of the economics. Small holdout creditors are forced by the court to accept the terms, and the distractions and legal costs of a prolonged proceeding are largely avoided. Under an uncontrolled filing, on the other hand, the dental bills of many lawyers' children would be paid for out of company assets. Maybe the banks are making the point that they are not always going to roll over and be reasonable. Maybe they want Mirant stock and management to be executed pour encourager les autres, as President Bush would say. One banker told me : "In this industry, management has a negative value added." What is really odd is that if the banks backed off on Mirant, the company and the other electricity producers could probably sell enough stock in the pre-election boom to recapitalise themselves effectively. But we may never find out if that would have happened. johndizard@hotmail.com search.ft.com.