Mirant shares rose sharply last Monday and remained in positive weekly territory on Friday after CEO Marce Fuller said the company would beat earnings forecasts and should have a solution to its credit woes in place before the end of the summer. However, the solution is likely to look a lot different than what was expected a few months ago when the idea was first announced, she said.

“Some people were talking about joint ventures [in risk management, marketing and trading],” Fuller said during a Banc of America Securities’ Energy & Power Conference in New York. “I would not think of this as a joint venture. Mirant will continue to own our risk management and marketing business. There won’t be separate ownership of that. This basically is just a way that a third party can come in and provide some capital, so that we can get that business a firm investment grade credit rating.”

Instead of bringing in a joint venture partner to invest in its risk management and marketing and trading operation, Fuller said Mirant has come up with a hybrid financing structure that is designed to improve its poor credit rating. It’s a permanent solution, she said, rather than the short term fix Mirant had been considering.

“We have been in discussions with what you could think of as a financial/insurance type [company] with a very high credit rating,” said Fuller. “The structure that we’re looking at is one where we would [create] a separate entity that we would like to have rated at least A minus, maybe even A rated. That entity would be separately capitalized. Mirant would put in some amount of base capital and there would be some dynamic capital that would be there, the amount of which would fluctuate based on certain characteristics of our book and would likely have some tie to value at risk. Then there would be a third layer of capital that I would describe as contingency capital that the third party would be on the hook to provide as certain things happen in the business environment.”

Fuller said the company has made progress recently on the financial structure, which became much more complex than originally envisioned. The third party investor/insurance company already has done a “thorough review” of Mirant’s books and control processes and is close to signing an agreement.

“Right now we are in discussions with Standard and Poors and Moody’s to get an understanding from them about their expectations of what those levels of capital would need to be to get that thing rated an A minus, a strong investment grade rating.”

Hoping to improve investor confidence after its bond rating was reduced to junk status in December, Atlanta-based Mirant slashed its 2002 capital budget by 40% — $1.5 billion — and planned the sale of $1.6 billion in assets. It stunned analysts with the announcement that it would halt all new U.S. construction of power plants, excluding an estimated 5,700 MW worth of construction already begun. The company has reduced its debt to capitalization to 59% from mid-65% and Fuller said it fully expects to beat earnings estimates this year.

Mirant previously said it would earn about 30 cents a share in the second quarter. Analysts on average forecast it to earn that much, but Fuller said the company’s earnings should surpass that figure. “I believe we will exceed our guidance,” she said, adding that Mirant should earn between $1.60 and $1.70 a share for the year.

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