Mirant

(MIR)

sought to distance itself from its faltering energy-merchant rivals Tuesday, but a sectorwide rally meant that for one day at least there was no need.

Mirant posted a 24% gain Tuesday afternoon after the company pointed to better-than-expected earnings and a big stash of available cash. Meanwhile, cash-strapped peers such as

Dynegy

(DYN)

and

Williams

(WMB) - Get Report

also rallied as investors set aside their liquidity fears for a second consecutive day.

Even so, clouds continued to loom over the sector. Mirant noted pending changes to its books and Williams suffered another rating-agency setback. Both events suggest investors will find no shortage of bad news when the market's psychology shifts again.

Here to Stay

Mirant, an Atlanta energy trader, posted a second-quarter loss of $151 million, or 38 cents a share, after taking more than $300 million in one-time charges. The company's earnings, excluding charges, came in at $145 million, or 36 cents a share.

The mean expectation among analysts polled by First Call was 34 cents a share.

In a conference call Tuesday, Mirant Chief Executive Marce Fuller offered strong reassurance about the company's liquidity -- $1.55 billion, almost entirely in cash -- and its prime positioning to emerge as a survivor from the industry's stunning meltdown.

"Many have painted merchant energy companies with broad, unflattering strokes," Fuller said. "There will be winners and losers -- and we believe Mirant will be one of the winners.

"This business is not going away."

Backing that confidence, Fuller said she and other Mirant executives have recently purchased 55,000 shares of the company's stock and sold none.

The company minimized the significance of an accounting review, announced Tuesday, that could alter its 2001 financial results. It is examining an $85 million overstatement of a gas inventory asset, a $100 million overstatement of an accounts payable liability and a potential $68 million overstatement of an accounts receivable asset.

Mirant said the overstatements "represent a mere fraction" of its $22.8 billion 2001 balance sheet, but is conducting a thorough review of the matter anyway.

"My goal is for our investors to have absolute confidence that our reporting is accurate," Fuller said. "I won't settle for anything else."

Buckling

Investors rewarded Mirant's second-quarter performance Tuesday by pushing shares to $3.65, a 24% gain, in midday trading. But they continued to favor two competitors that last week buckled under liquidity concerns and this week missed earnings expectations.

Houston-based Dynegy was up 43%, to $1.72, despite posting an unexpected penny loss after charges. The company traded at a low of 49 cents last week before Monday's announcement of a major pipeline sale that will generate more than $900 million in desperately needed cash. The stock fetched $48 a year ago.

Williams, still faced with a possible cash crunch, gained 38% to hit $2.75 a day after formally reporting a major second-quarter loss that shocked the market last week. The stock, which bottomed at 78 cents Friday, has spiraled from $34 last summer.

Tuesday's gains came despite another downgrade from Fitch Ratings, which sent Williams' credit deeper into junk territory. The ratings agency continues to view Williams' credit negatively, due to the company's lack of progress in renewing a crucial credit facility that expires this week.

"Fitch estimates that WMB's available cash position has dwindled to less than $700 million from approximately $1.14 billion just one week ago," the agency stated in a report issued Tuesday. "WMB's liquidity position is becoming increasingly tenuous."

In contrast, Mirant on Tuesday boasted of strong liquidity, due primarily to its ability this month to convert a $1.125 revolving credit facility into a one-year term loan. The company, which has achieved the $1.6 billion in planned asset sales announced in January, said it expects to end the year with even stronger liquidity of $1.7 billion.

Due to rapid erosion in the sector -- particularly over the last couple of weeks -- Mirant said it will seek to further strengthen its balance sheet through up to $1 billion in additional asset sales. The company was among the first to begin selling off assets, following a downgrade last year that lowered its credit to junk status.

"We have taken decisive action on factors within our control," Fuller said. "And we will take bold steps to improve our company."

Mirant left its 2002 earnings guidance of $1.60 to $1.70 a share unchanged, but warned of a possible downward revision given current market conditions. The company predicted that earnings would decline in 2003, although it gave no specific guidance.