Mirant gives up prior gains; airlines steady despite oil surge; Calpine better

By Paul Deckelman

New York , June 20 - Mirant Corp.'s bonds, which firmed smartly on Friday in the wake of the news that the bankrupt Atlanta-based energy company plans to sue its former corporate parent, Southern Co., for $2 billion, were seen heading in the opposite direction Monday, apparently brought lower on profit-taking.

Elsewhere, airline bonds - particularly Northwest Airlines Corp. - were seen pretty much steady, even as the price of crude oil on world commodity markets - considered a generally reliable weather vane as to the future direction of jet fuel prices - hit new record highs just under $60 per barrel.

A trader saw Mirant's 7.40% notes that were to have come due last year, and the company's 7.90% notes, which generally move pretty much in tandem, as having both dropped down to 79 bid, 80 offered from prior levels around 81 bid, 82 offered. He also saw the company's busted 2½% convertible notes lose a point to 77 bid, 78 offered, and its likewise defaulted 5¾% converts two points lower at 78 bid, 79 offered.

The bonds, along with Mirant bank debt, had firmed on Friday on the news of the $2 billion lawsuit against former parent Southern Co., which spun Mirant off in 2001.

The suit, which was filed in the U.S. Bankruptcy Court for the Northern District of Texas, in Fort Worth, where Mirant's Chapter 11 reorganization case is being heard, is related to transfers of funds made from Mirant to Southern prior to being spun off.

Mirant claims that Southern caused it to incur "a mountain of debt" and then stripped Mirant of approximately $2 billion via payments and transfers in anticipation the spin-off, causing Mirant to be left with "inadequate resources to meet the obligations that its former parent had caused it to incur," according to its filing.

Southern has denied any allegations that it drained Mirant of cash before kicking it out the door, groaning under the heavy debt load, claiming that Mirant was "financially healthy at the time of the spin-off," and blaming its former unit's financial demise on what it called "a perfect storm of unfortunate events," including the collapse of Enron Corp., which threw the entire merchant energy sector for a gigantic loss, the U.S. economic recession and the events of 9/11.

Calpine higher on convertible sale

Also in the energy sphere, Calpine Corp.'s bonds were up, as the San Jose, Calif.,-based power generating company announced several steps in its ongoing efforts to improve its balance sheet - updating the market about what it intends to do about its $403 million of outstanding High Tides III equity-linked securities, and announcing new convertible debt financing.

Calpine's shares climbed, and along with them the bonds, with a market source pegging Calpine's benchmark 8½% notes due 2008 as having moved up to 71.25 bid from 68.25 previously, and its 8½% notes due 2011 at 68 bid, up from 66.5.

He also saw the company's 8¾% notes due 2007 at 75, up two points; its 7¾% notes due 2009 at 67 bid, up from 65.5; its 7 7/8% notes due 2008 at 69 bid, up from 67.5; and its 8.40% notes due 2012 finishing at 92 bid, up from 91.25.

Another trader, however, while conceding that the 8¾% notes "look a little stronger" at 75 bid, 77 offered, added that "everything else seems to be in line" where those issues recently had been." The up move was "half a point, no great shakes."

Calpine, in dealing with balance-sheet matters, said that it had submitted the required notification leading up to the potential remarketing of the company's High Tides III, its 5% convertible preferred securities.

It also notified holders of its right to redeem the securities, either all of them or some of them, at any time on or before July 21.

Calpine has already indicated its intentions of redeeming the High Tides prior to the remarketing. If not earlier redeemed, the remarketing of the securities would begin on July 23.

On a related note, Calpine also announced Monday that it had sold $650 million in contingent convertible notes due 2015, and will use the proceeds to redeem the High Tides securities in full and buy back some other debt.

Calpine's NYSE-traded shares were up 40 cents (12.90%), to $3.50.

Airlines steady as oil soars

In the airline sector, traders saw not much movement, even with a big potential negative hanging over the troubled industry - the likelihood that world crude prices will break $60 a barrel, probably sooner rather than later, signaling a likely rise in the already sky-high price of jet fuel, which has taken a jumbo-jet-sized bite out of the bottom lines of carriers such as Eagan, Minn.-based Northwest, Atlanta-based Delta Air Lines Inc., and others.

But despite the spike in prices Monday to a new record close on the New York Mercantile Exchange of $59.37 for July delivery of light sweet crude, up 90 cents on the day, airline bonds were steady, particularly Northwest, whose debt had retreated Friday, after Northwest had to back off a planned $10 hike in fares from their $499 top rate - the second time this month Northwest tried to take its fares up to get more revenue, only to have to rescind the fare hike in order to stay competitive with Delta and other peers.

A trader said Northwest bonds "were heading south on Friday but have now stalled," quoting its 8 7/8% notes due 2006 at 66 bid, 68 offered, its 8.70% notes due 2007 at 53 bid, 55 offered, its 9 7/8% notes due 2007 at 56 bid,. 58 offered, and its 10% notes due 2009 and 7 7/8% notes due 2008 at 45 bid, 47 offered, all essentially unchanged, he said.

He also saw Delta's bonds unchanged, with its benchmark 7.70% notes due 2005 around 87.

And bankrupt United Airlines bonds also held steady, at 13.5 bid, 14.5 offered "about where they already were."

Asbestos names dip

The trader further saw the debt of bankrupt asbestos-challenged companies easier, despite a lack of fresh news about the sector; Owens Corning's bonds were two points lower at 74 bid, 76 offered, while Armstrong World Industries Inc. was a point easier at 79 bid, 81 offered.

Bank debt market traders meantime reported little or no activity in the paper of distressed companies.

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