Adding to the company’s current troubles, Mirant announced Friday that its Mirant Americas Generation LLC (MAG) subsidiary received on June 6 a notice of default on credit facilities from Lehman Brothers Commercial Paper Inc. The company also said that it is actively “seeking acceptances” from its bank lenders of the proposed pre-packaged Chapter 11 reorganization plan, which was sent out earlier this month as a worst-case alternative to its debt restructuring proposal (see Power Market Today, June 3).

The news prompted a sell-off by investors Friday on the New York Stock Exchange. Mirant stock was down over 10% in Friday trading to close at $2.77.

In an 8k filed with the Securities and Exchange Commission, Mirant said that the default occurred as a result of MAG’s “failure to deliver” its financial statements for the quarter ended March 31 and related officer certificates, within the time specified in each of the MAG credit facilities. Mirant said its subsidiary has 30 days to remedy the default, after which time Lehman Brothers may choose to either terminate the obligation of each lender to make further advances or accelerate MAG’s repayment obligations under the credit facilities.

The company said it anticipates that MAG will be able to provide the required financial statements and officer certificates prior to the expiration of the 30-day cure period. However, if MAG is unable to remedy the problem within 30-days and the lenders opt to accelerate the repayments, Mirant said it does “not anticipate that MAG would be able to make such repayments and MAG would need to seek bankruptcy protection.”

Regarding its pre-packaged reorganization plan, Mirant said its solicitation is consistent with the company’s previous filing and contains substantially the same terms as the terms in the debt restructuring proposal, which needs to be completed for the company to avoid bankruptcy.

However, the debt restructuring plan is being contested by a group of bondholders who filed suit against Mirant and MAG, claiming that their rights have been violated, and seeking, among other things, to prohibit the transaction (see Power Market Today, June 12). The bondholders had sought for the court to schedule a hearing on their motion to enjoin the consummation of the debt restructuring and exchange offer, but the court refused, and instead, scheduled a trial for November or December 2003 (see Power Market Today, June 20).

At the heart of the dispute, 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 MAG, 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 Power Market Today, June 3). Currently, none of the debt that is the subject of the exchange offers and bank negotiations is secured.

Mirant said that the court’s action allows it and MAG to move forward with the exchange offers as scheduled. The companies said they believe the plaintiffs’ claims are without merit and intend to defend this action vigorously. “Our strong preference is to achieve a financial restructuring out of court, and we remain hopeful we can do so,” said Mirant CEO Marce Fuller.

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