The drastic moves announced during a conference call is part of the continuing fallout from Enron Corp.’s bankruptcy, a lack of investor confidence and the recession. In Enron’s wake, merchant energy companies have been especially hard hit, with their stock prices plummeting and bond ratings dropping. Moody’s Investors Service downgraded $4.9 billion of Mirant’s debt to junk late on Wednesday.

The company said Friday in a second conference call that it had issued 60 million shares, garnering $759 million. It received good news from Standard & Poor’s which reaffirmed its BBB credit rating. Mirant said it expects to have a total of $4.8 billion in liquidity by the end of next year, excluding the equity sale.

Meanwhile Mirant CEO Marce Fuller said a few words over the grave of the “who needs assets?” business strategy. “The days of companies with no physical assets trying to be top tier players — those days are over in this business.

“Now people are looking to top tier players to have an extensive asset base standing behind the business, whether it’s owned or controlled. What we’ve seen with Enron, and Aquila being bought back by UtiliCorp are good examples of that.”

And the new pressure from the ratings agencies is pushing the industry toward expanding master netting agreements to minimize the amount of capital needed to stand behind the trading business, Fuller said. Traditionally there have been opportunities to net out obligations within commodities, but “we’re beginning to see more interest in the marketplace for netting across commodities and across products. This could be a win, win for the entire industry.”

Fuller said the trading and marketing industry in general responding very well and continuing to do business with Mirant despite Wednesday’s downgrade of the company’s debt. “All our major counterparties are being very cooperative and supportive. They are continuing to trade with us. We have met all our physical deliveries and everyone doing business with us has met theirs.”

Mirant’s actions Thursday in drastically cutting its construction schedule and issuing stock is an attempt to get back to the BBB rating level, Fuller said. Without it the company will be shut out of part of the market that requires more guarantees. “That is the biggest negative. It will limit our ability to pursue a lot of new long term direct customer business.”

Late Thursday Fitch placed ratings of Mirant and four other energy-related companies and their affiliates — AES Corp., TECO Energy Inc., UtiliCorp United Inc. and Xcel Energy Inc. — on Rating Watch Negative “because of recent negative events and adverse market sentiment affecting the energy sector” (see related story).

“With these steps, we are responding to the reality of the current market and capital environment,” said Fuller said in explaining the company’s cutbacks. “We have a plan that works and should not require us to access the debt and equity capital markets during 2002. My management team takes the current situation very seriously. We are taking significant steps to strengthen our balance sheet and create value for our shareholders. We are open and candid about our business to keep the confidence and trust of our customers, investors and employees.”

By the end of next year when all of Mirant’s plans have been put in place, the energy marketer expects earnings per share to increase at an average rate of 10-15% in the five years after 2002, CFO Ray Hill said. Earnings for 2002 are expected to be in the range of $2.00-2.10 per share, he said.

Hill told analysts during the conference call that Mirant’s new 2002 earnings forecast of $2.00-$2.10 per share is based on about $110 million less net income than the company had expected before the announcement Thursday to improve its balance sheet and liquidity. The new forecast also includes the dilution expected from the sale of 40 million common shares. For 2001, the company is maintaining guidance for the full year of at least $1.95 per share, but the guidance excludes the one-time charge relating to Mirant’s Enron exposure, “which could be as high as $111 million (pre-tax).”

Currently, Mirant has cash and undrawn credit lines totaling $1.6 billion and another $1.1 billion in cash generated by its existing businesses. Another $900 million is expected upon the close of its Bewag asset, which is already in the works. Non-strategic asset sales also will generate more than $700 million in cash, said the company.

Mirant also announced that it has raised approximately $500 million through a bank revolver to finance certain construction projects. The revised capital budget for 2002, which totals $2.6 billion, will be used primarily for ongoing construction of 5,700 MW of generating capacity in the United States, including $400 million for maintenance and environmental expenditures.

For 2002, Mirant said capital requirements will include $300 million provided to Asia to support loan refinancing; $250 million for a Transition Power Agreement with PEPCO; and $600 – $700 million additional working capital requirements because of the downgrade to junk status by Moody’s Investors Service. However, with the revised spending plan, Mirant officials noted that it will not need financings in the debt or equity capital markets next year.

The company also is committed to return to an investment-grade credit rating across the board, noting that it still had those ratings with Standard & Poor’s. The “new share offering demonstrates Mirant’s commitment to credit quality and offsets additional working capital needs triggered by the Moody’s downgrade,” the company said.

In putting the negative watch on Mirant Fitch noted “a weaker profit environment over the near term for merchant generation and wholesale marketing and trading, and some concern about the concentration of dividend sources from Asian emerging markets (Philippines and China). Fitch is not concerned about Mirant’s near-term liquidity, since the company has significant reserves of cash and unused credit lines available to fund both likely and unlikely contingencies including additional collateral needs for trading counterparties and contracts.”

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