Upbeat comments by Mirant Corp. CEO Marce Fuller failed to sway Wall Street Wednesday after the company announced it is working to restructure more than $5 billion in debt — warning that there are substantial risks if it fails to successfully complete its negotiations.
Shares fell about 5%, or 16 cents in heavy trading, as more than 21 million shares exchanged hands. The company, a spin off from Southern Co. in 2001, was the fifth most active stock on the New York Stock Exchange.
The investor activity followed an earlier announcement that Mirant, which is carrying $8.6 billion in debt and a “junk” credit rating, is working to restructure about $5.3 billion in debt through an agreement with creditor groups to defer repayment of the principal. As security, Mirant is offering nearly all of its unencumbered assets and more favorable terms as an incentive for creditors to extend maturities. Mirant noted that it would not need to borrow additional funds as part of the refinancing package.
Mirant had recently obtained waivers from its creditors in the event of a default on certain terms of its bank loans. The waivers, set to expire at the end of this month, could be extended until mid-July, when $1.125 billion in debt will come due. About $3 billion of the total debt being refinanced is within Mirant’s generation subsidiary; another $450 million is for its turbine facility and natural gas pre-pay business, Fuller said Wednesday. Corporate bonds make up the rest of the debt.
In a conference call with analysts, Fuller said she was optimistic that the Atlanta-based utility would successfully complete its negotiations, acknowledging there are bankruptcy risks without a positive response from creditors. “We expect the value of Mirant to grow in the future,” she said during the call.
But like investors, Wall Street analysts didn’t appear to be completely wowed by Mirant’s news.
CreditSights analyst Dot Matthews said that Mirant’s corporate bond debt may be the most difficult debt to refinance. “It’s harder to do the public portion, and they may have to make some concessions,” she said. For example, bondholders could demand higher returns in exchange for longer maturities. “The public debt of distressed companies is now in the hands of distressed players.”
As of April 25, total cash and available lines of credit at the company and its subsidiaries equaled $1.4 billion, compared with $2 billion in total cash and available credit at year-end 2002. Also, as of April 25, Mirant had $869 million in collateral posted to support its North American assets, marketing and risk management business. Mirant expects to reduce collateral to approximately $500 million by the end of the year.
In addition, the company noted that the recent sale of the majority of Mirant’s Canadian natural gas aggregator, transport and storage business is expected to return approximately $200 million in collateral (see Daily GPI, May 2).
As for the operational outlook for the rest of this year and beyond, Mirant is forecasting $800 million in adjusted earnings before interest, tax, depreciation and amortization (EBITDA) for 2003. Mirant’s North America operations are expected to contribute approximately 40% of the company’s 2003 adjusted EBITDA. Of the company’s North American gross margin, 92% is attributed to its assets and asset-related risk management and marketing activities.
Meanwhile, Mirant said that its stable international operations are expected to contribute approximately 60% of the company’s 2003 adjusted EBITDA. Philippine and Caribbean assets are expected to grow, on average, approximately 5% per year and provide stable financial returns through the next five years due to the contract or franchise nature of these businesses.
Mirant expects approximately $100 million of improvements in adjusted EBITDA from 2003 to 2004 due primarily to cost reduction initiatives. Beyond 2004, the company forecasts improvements in EBITDA as markets begin to recover.
Jeff Gildersleeve, an analyst with Argus Research, said he thought it was “clear from their guidance” that Mirant won’t have any “sizeable profits” this year. “The company is still left with many issues to deal with.”
Mirant is preparing revised quarterly financial information for 2002 and 2001, and now expects to provide the prior years’ quarterly results, and file results for the first quarter 2003, as soon as possible. Fuller reiterated that no fraud has been found in its reaudit.
In other news, Mirant declared commercial operation has begun at its new 533 MW, natural gas-fired power plant in Clark County, NV, north of Las Vegas. Mirant is providing 325 MW of power under a long-term wholesale power purchase agreement with Nevada Power, a vast majority of which will come directly from the new plant.
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