Mirant keeps climbing on valuation change; Northwest continues rebound

By Paul Deckelman and Sara Rosenberg

New York, July 11 - Mirant Corp. bonds and bank debt continued to ride a rocket Monday, pushing up to levels not seen in many months in the wake of a recent bankruptcy court ruling directing the restructuring Atlanta-based energy generation company to use a different method of estimating its enterprise value.

Also still winging their way up were the bonds of Northwest Airlines Corp. - hard hit by last week's terrorist bombings in London, but bouncing back over the past two sessions on lower oil prices and expectations that the bombings won't have a lasting effect on the fortunes of airlines such as Eagan, Minn.-based Northwest.

Mirant's bank debt reached new levels of 86 bid, 87 offered on Monday, up from 83.75 bid, 84.75 offered, according to a trader,

That bank debt has been on the rise since the Atlanta-based energy company announced that it would have to change its method of evaluating its enterprise value. In fact, in only about a week's time, the paper has traded up by seven or eight points.

Under the new method of evaluation, the company was told by the bankruptcy court to use a number of different standards in calculating a range of values, including the use of recent financial data.

The change in valuation methods was ordered after equity holders had complained that the previous method setting valuation severely underestimates the enterprise value of Mirant, maybe by as much as $1.74 billion, essentially preventing them from getting any kind of a recovery.

A trader in distressed junk bonds meantime saw the company's 7.90% notes due 2009 jumping four points, to 97 bid, 99 offered, while its 7.40% notes that were to have matured last year were at 96 bid, 98 offered - well up from 91 bid, 93 offered previously. He also saw the company's 2½% convertible notes a point better at 86 bid, 88 offered, and its 5¾% converts also up a point at 91 bid, 93 offered.

The movement of Mirant's bonds since that June 30 decision "is probably verifying what the equity people were saying, that [the company] is grossly under-valued. People are beginning to believe it.

"Some of the bonds," he continued, "are spreading wider because of claims and stuff." He noted that a month ago, the 2½% converts were 76 bid, 78 offered, while the 7.40s were 78 bid, 80 offered. "Now you've got 'em 86-88 and 96-98 [respectively], 10 points [of difference between the two issues]. So they went from two points to 10 points. It's a big move, basically on claims."

Northwest rises

Elsewhere, the trader saw Northwest Airline's bonds "up a couple" of points, with its 8 7/8% notes due 2006 at 62 bid, 64 offered, up from 60 bid, 62 offered on Friday, while its 10% notes due 2009 were a point better at 43 bid, 45 offered.

A trader at another desk saw the 8 7/8s at 62.5 bid, 63.5 offered, up 2½ points on the day, while a market source saw the airline's 7 7/8% notes due 2008 two points better at 42 bid, 43 offered.

Northwest's Nasdaq-traded shares gained 33 cents (7.48%) to $4.74 on volume of 4.3 million shares, somewhat more than the usual 3.6 million-share turnover.

The catalyst, said the second trader, was oil prices, which settled at $58.92 per barrel of light, sweet crude for August delivery, down 71 cents on the New York Mercantile Exchange.

Crude prices - viewed as a harbinger of likely future airline fuel-cost trends - last week spiked up to closing levels almost at $62 per barrel, but then they started coming down late last week on profit-taking off recent gains.

The retreat was accelerated Monday by the fact that Hurricane Dennis, which blasted the Florida Panhandle and the nearby Gulf Coast over the weekend, did not damage any of the numerous refineries situated near the Gulf, as some market participants had feared.

Also benefiting were the bonds of troubled Delta Air Lines Inc., whose 7.70% notes due 2005 were two points better at 86 bid, 88 offered, while the Atlanta-based Number-Three U.S. airline carrier's 10% notes due 2009 were also two points ahead, at 37 bid, 39 offered. Its 8.30% notes due 2029 were a point better at 25 bid, 27 offered.

Heading into earnings time for the most recent quarter, some analysts were predicting that even some airline majors such as Continental Airlines Corp. and, perhaps, American Airlines parent AMR Corp. might show a profit this just-past quarter, on increased passenger traffic. However, Northwest and Delta are still expected to post losses.

Another sign that things might be looking up for the battered airlines was the announcement by UAL Corp., the parent of the bankrupt United Airlines, that it will be rehiring some 600 flight attendants furloughed when the Elk Grove Village, Ill.-based Number-Two U.S. carrier's business went into a tailspin in the months following 9/11, in which two United jets were destroyed with all aboard.

UAL said that those attendants should be back in the air by Aug. 1 - and said that it planned on bringing back another 850 attendants by the end of November, which would account for all of the more than 1,400 attendants laid off as struggling UAL cut service and grounded planes. The carrier said that it was recalling the flight attendants due to increased passenger demand - meaning more planes flying near capacity. However, a trader said, United's bonds - which recently pushed as high as 14.5 bid from prior levels around 6-7, boosted by optimistic predictions by chief executive officer Glenn Tilton, before easing slightly from that peak - were unchanged Monday at 13.5 bid, 14.5 offered.

Collins & Aikman continues better

Elsewhere, the automotive sector continued to show signs of strength. Bank debt traders saw Collins & Aikman Corp. paper continuing the upward trend seen late last week, moving about half a point higher to 82 bid, 82.75 offered.

That rally really began last Wednesday - although it didn't quite stick till Thursday - when the paper was driven up by news that the bankrupt Troy, Mich.-based automotive components supplier had reached agreement with its biggest customers on $82.5 million of additional financing, $82.5 million in price increases and various other benefits.

Wednesday had been an extremely volatile day for the bank debt, as the paper rallied by late afternoon to 82.5 bid, 84.5 offered from around 74 previously and then proceeded to give up about four points of its gains after the conclusion of a late day private call.

But, on Thursday, the paper headed back to the 81.5 bid, 82.5 offered range, as it basically settled into its highs and has continued to steadily gain ground since then.

The company's bonds, particularly its 10¾% senior notes due 2011, were also volatile, falling as low as 22 last week, then shooting up to 34 on the financing news, and then backing down from that peak, into the upper 20s. On Monday, a trader said, Collins' notes went home at the same 27 bid, 29 offered level at which they had ended on Friday.

Other auto names up too

But the trader saw some movement in other troubled auto names, with bankrupt Novi, Mich.-based frame component maker Tower Automotive's 12% notes due 2013 two points better at 69 bid, 61 offered.

Delphi Corp.'s 6.55% notes due 2006 firmed a point to 98 bid, 99 offered, while its 6½% notes due 2009 gained two points to 88 bid, 90 offered, continuing the rise seen Friday on news reports that the Troy, Mich.-based auto components maker - a former subsidiary of General Motors Corp. - had talked with its former parent and with the United Auto Workers union, in hopes of getting some kind of help from GM and the UAW in easing its healthcare costs and other burdens.

Delphi's longer-dated paper also benefited, with its 6½% notes due 2013 seen three points better at 79 bid, 81 offered, while its 7 1/8% notes due 2029 were two points up at 73 bid, 75 offered.

Foamex lower

Perhaps the most curious story coming out of the auto sector is Foamex International Inc., where holders of its 10¾% notes due 2009 have reportedly urged the company not to pay the 13½% notes slated to mature next month.

Those 131/2s, which had been trading at 90 previously, went home offered at that level Friday, and closed at 80 offered, with no bids seen on Monday.

Another trader saw those bonds offered at 75, down from an offered level of 85 previously. The 103/4s were meantime quoted at 84 bid, 85 offered, up half a point, while the subordinated 9 7/8% notes due 2007 were seen a point higher at 41.5 bid, 42.5 offered.

The Linwood, Pa.-based maker of foam rubber products for the automotive industry also said Monday that due to rising raw materials prices and a "difficult" operating environment, it has "significantly reduced" its earnings expectations for the second quarter. The company recently disclosed an amendment to the Foamex LP credit facility that provides additional flexibility in its second quarter bank covenants and bolsters liquidity.

Foamex also announced that it has retained the investment banking firm Miller Buckfire & Co., LLC to "help evaluate strategic alternatives for strengthening the company's balance sheet and enhancing long-term value."

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