Updated from 3:58 p.m. EDT
plunged Thursday after Merrill Lynch issued a negative research report, saying there was a good chance the energy company would be forced to file for bankruptcy.
With that in mind, Merrill cut its rating on Mirant's stock to sell from neutral. The shares closed down 42 cents, or 15.6%, to $2.28 on the
New York Stock Exchange
More than 56 million Mirant shares traded. Volume on a normal day is about 12.4 million shares.
According to a research note, Merrill thinks Mirant has less than a 50% chance of reaching a debt-restructuring agreement by the upcoming deadline.
On Wednesday, Mirant filed documents with the
Securities and Exchange Commission
indicating that it was trying to arrange a deal with its banks, including offering a higher interest rate and more stock warrants.
"We believe that the probability of achieving an out-of-court debt restructuring by the July 14 midnight deadline has declined below 50%, maybe well below," Merrill wrote. "We had previously estimated a two-thirds probability."
The research firm said that the downside risk to the stock price now ranges from becoming worthless in an involuntary bankruptcy to "maybe" $2 in a prepackaged arrangement.
"To our knowledge, neither Citibank nor CSFB has yet agreed to support
Mirant's plan," Merrill said. "If there were a strong consensus in the bank group in favor of the plan, and more time was needed to persuade 'holdout' banks, we believe that steps would have been taken already to extend the deadline."
The firm added that "it is not inconceivable that a deal is reached at the final hour, although we do not consider it likely." Should an out-of-court plan be reached, Merrill said Mirant's stock could trade up to the $4 area, depending on the terms of the deal.