A group of bondholders of a Mirant Corp. generation subsidiary have filed a lawsuit in Delaware Chancery Court against Mirant in an attempt to derail the debt restructuring plan the company announced earlier this month to avoid bankruptcy.

The bondholders, who include the California Public Employees’ Retirement System, Islington Partners LP and The Liverpool Limited Partnership, which hold about $300 million of Mirant Americas Generation’s (MAGI) $2.5 billion in bonds, say they already have “sustained billions in damages” from the company, which is now trying to “raid the assets” of its subsidiary.

The bondholders said the illegal “asset grab” violates federal securities laws and breaches the company’s fiduciary duty to them because it would subordinate their credits to those of the parent company. They called it “a deliberate, systematic scheme to transfer to, or for the benefit of Mirant, substantially all of the value of MAGI while the company is insolvent.” They also claim Mirant already has “fraudulently transferred over $1 billion in the value of MAGI to Mirant by payment of illegal dividends.

“Now defendants have proposed exchange offers for certain of MAGI’s outstanding debt which contemplate the transfer of additional billions of dollars of value from MAGI to Mirant through the granting of first liens on the asset of MAGI and its wholly owned subsidiaries for the benefit of Mirant creditors.”

The complaint also charges that Mirant has been in financial trouble for the last 18 months and has survived only through “financial trickery and the manipulation of its wholly-owned subsidiaries in order to maintain the fiction that it is able to pay its debts when due.”

Atlanta-based Mirant on June 2 offered to exchange $1.45 billion of unsecured bonds due within three years for new secured notes due in 2008. It would include refinancing nearly $3.5 billion in bank debt at both Mirant and MAGI, which holds some of Mirant’s generating assets in Maryland, Virginia, California, New York, Texas and Massachusetts. The new senior secured credit facilities and the new notes would be secured by first priority liens on the assets of certain direct and indirect U.S. subsidiaries of Mirant, shared equally among the holders of the new notes and credit facilities (see NGI, June 9). Currently, none of the debt that is the subject of the exchange offers and bank negotiations is secured.

Mirant said it expected opposition to its restructuring plan because it also asked bondholders to approve a prepackaged bankruptcy if it couldn’t gain enough creditor support for the restructuring proposal. The terms of the prepackaged bankruptcy plan are virtually identical to the debt restructuring plan.

“Mirant and MAGI, our subsidiary, believe the suit is without merit and will be dismissed,” said Mirant spokesman James Peters. “It’s no surprise to us. A suit of this nature is not unusual while we go through these types of negotiations. But we are committed to repaying our creditors in full with interest and preserving value for our bank stakeholders. We believe it’s a fair exchange offer.”

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