In a plan designed to pay off its creditors and avert a likely bankruptcy, Atlanta-based Mirant has offered to restructure some of its debt and bonds. Mirant also is asking its debt holders to vote in favor of a “fast track” pre-packaged plan of reorganization, in case an insufficient number of banks or bondholders agree with its out-of-court restructuring plan.

The cash-strapped company also has been negotiating with its lenders to obtain new senior secured revolving and term loan credit facilities to refinance the existing credit facilities of Mirant and subsidiary Mirant Americas Generation LLC (MAG) existing credit facilities. No agreement has yet been reached, but on May 29, Mirant obtained an extension of its waiver agreement with the banks to July 14.

In the debt and bond transaction, Mirant plans to exchange $750 million of 2.5% convertible debentures (due in 2021 but puttable in 2004), and $200 million of 7.4% senior notes (due in 2004) for new senior secured notes (due 2008). The company said it is offering $1,000 of the new secured notes for each $1,000 worth of convertible debentures, and $1,000 of the new secured notes for each $1,000 of the senior notes.

In addition, MAG is offering $1,000 principal amount of new secured debt in exchange for each $1,000 principal amount of the $500 million face amount of its outstanding 7.625% senior notes due in 2006.

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 and ratably among the holders of the new notes, the new MAG notes and the new credit facilities. They will also be backed by a pledge of 100% of the stock of some indirect U.S. subsidiaries of Mirant and 65% of the stock of some indirect foreign subsidiaries of Mirant.

Currently, none of the Mirant or MAG debt that is the subject of the exchange offers and bank negotiations is secured. On May 30, two of the agent banks informed Mirant that they do not support sharing first priority liens with bondholders.

“After a great deal of analysis, we concluded that this bond debt restructuring, coupled with a concurrent bank debt restructuring, is the best way for all of our creditors to receive full payment for what we owe them, while taking steps to preserve value for our shareholders,” said CEO Marce Fuller. “We believe these exchange offers meet the needs of our debtholders and also are in the best interest of Mirant’s various stakeholders.”

Implementation of the bond debt exchange offers is contingent upon successful renegotiation of the bank debt, Mirant said. The terms of the plan of reorganization are substantially similar to the terms of the exchange offer and bank debt refinancing, and would not affect other creditors of Mirant or MAG.

Refinancing of the credit facilities requires the agreement of all of the company’s banks, according to Mirant. The Mirant exchange offers currently require holders of 85% of the face amount of the Mirant debt sought for exchange to agree to a new plan.

By comparison, said Mirant, a pre-packaged Chapter 11 reorganization only requires the approval of two-thirds in amount, and more than one-half in number, of the solicited creditors who actually vote on the plan. Upon confirmation of a plan of reorganization, all affected creditors are bound by its terms, whether they voted or not and regardless of whether they voted in favor or not.

“Although our strong preference is to do this restructuring out of court — and we are hopeful we can do so — an in-court restructuring plan would provide essentially the same financial consideration to existing debt holders as is offered under the exchange offer,” said Fuller.

The exchange offers, whose terms are fully described in the exchange offer and disclosure statement documents provided by the company to its target debtholders, will expire on June 27, unless it is extended.

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