Mirant Succumbs to Chapter 11 Pressure

The company says lenders weren't willing to keep waiting for a power-price recovery.
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Ending weeks of speculation and months of struggle,

Mirant

(MIR)

sought chapter 11 bankruptcy protection in Fort Worth, Texas, citing increasingly restive lenders and a failure of power prices to bounce back.

The Atlanta energy merchant listed $20.6 billion in assets, $11.4 billion in debt and $1.17 billion in cash in its petition, which covers the parent as well as Mirant Americas Generation LLC, and virtually all of its subsidiaries except those in the Philippines and the Caribbean.

The company got $500 million of debtor-in-possession financing and said, "Worldwide operations are continuing without interruption and our vendors will be paid in full for all goods furnished and services provided after the filing date." It made a court motion seeking permission to keep paying its 7,000 workers.

Mirant's slow slide began with the rest of the merchant energy industry's with the decline of

Enron

in 2001, was exacerbated by allegations of wrongdoing in the California energy market and became unsalvageable because of a long slump in the price of power.

"Although we received broad support from the company's creditors on our restructuring plan, failure to obtain the timely support of our key lenders created substantial uncertainty in the marketplace about the outcome of these discussions," Mirant said. "This, in turn, put a strain on our liquidity and threatened the feasibility of our business plan. Add to this, uncertainty about the timing of the recovery in power prices and a slow economic recovery in the U.S., and it became clear that a comprehensive financial reorganization was the best approach for our stakeholders."

The company has yet to formulate a reorganization plan and therefore couldn't predict the outcome for its creditors and equity holders, though common stock almost always becomes worthless in a chapter 11 filing.