Mirant plunges on report bondholders may block note exchange; UAL weakens after SEC filing

By Carlise Newman

Chicago, June 10 - Mirant Corp.'s bonds were drowning Tuesday after a report that some of the power generator's bondholders are planning an attempt to block its debt exchange offer.

Mirant's 7 5/8% notes due 2006 were down to 71 bid, 73 offered by Tuesday's close after rising as high as 75 bid, 76 offered Monday, a trader said.

"The bonds were down as much as one to four points across the board by the end of the day," a trader said.

Another source said the bonds were down by as much as 6 or 7 points at 73 bid, 75 offered.

Last week, Mirant began an offered to exchange new secured debt for $1.45 billion of existing bonds due or putable within three years. Mirant is offering new senior secured notes due 2008 in exchange for its $750 million of 2.5% convertible debentures due 2021 but putable in 2004 and $200 million of 7.4% senior notes due 2004. Mirant subsidiary Mirant Americas Generation LLC is also conducting a similar exchange for its 7.625% notes due 2006.

But holders of Mirant Americas Generation bonds plan to file suit, likely this week, to stop the offer, according to sources cited by Reuters. The Mirant Americas Generation bondholders say the offer unduly favors creditors holding Mirant debt at their expense, the report said.

In addition to the exchange, the Atlanta-based company said it is asking holders of the bond debt to vote in favor of a prepackaged plan of reorganization, in case an insufficient number of banks or bondholders agree with its out-of-court restructuring plan.

And analysts have said if the bond exchange offer is blocked by legal action or turned down by creditors, Mirant would likely file for bankruptcy.

"They must have been aware something like this would happen," a trader said.

Meanwhile in the power sector, Calpine Corp.'s 8½% notes due 2011 were quoted at 73 bid, 74 offered, unchanged from Monday.

Chicago-based UAL Corp., parent of bankrupt United Airlines, was in for a rough day Tuesday after the company said in a regulatory filing that there would be nothing left for equity investors after emerging from bankruptcy.

UAL's 9¾% notes due 2021 were quoted at 9 bid, 10 offered, down a point from Monday and down three points from Friday, when they had been trading at 12 bid, a trader said.

UAL said it has begun to present its updated business plan to its board of directors, creditors committee and potential sources of exit financing. It also warned there will likely not be a "meaningful" distribution to existing stockholders.

"In connection with the development of the business plan and the company's preparation for exit from bankruptcy, based on numerous factors, including the competing claims of the company's constituencies against UAL and its bankruptcy estates, the company has concluded that its assets will be insufficient to permit any meaningful distribution to its equity holders," UAL said in a Securities and Exchange Commission filing.

UAL said its equity securities have little or no value and it is highly likely that they will canceled in the reorganization.

"Is anyone surprised by this news?" a distressed debt trader said. "But it does appear they're ready to come out (of bankruptcy)."

American Airlines' 9% notes due 2011 were quoted at 57 bid, 59 offered Tuesday, apparently not dragged down by United's news, as the bonds were unchanged from levels they've held for over a week.

After the close Monday Moody's Investors Service confirmed its ratings for all debt securities of Fort Worth-based AMR and American Airlines. The outlook is negative.

In other news, WorldCom Inc.'s bank debt was seen trading at 29.

Centennial Communications Corp.'s bank debt was quoted at 92¾ bid, 93½ offered, a trader said, which was ½ point higher than Monday's close.

On Monday Centennial announced it will sell $250 million of senior notes due 2008.

Proceeds from the Rule 144A/Regulation S notes will be used to repay bank debt and for general corporate purposes. No syndicate or timing information was disclosed in the press release.

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