Mirant ( MIR) is using its monstrous debt load as a weapon. The cash-strapped power provider is essentially threatening to file for bankruptcy protection if its stubborn lenders refuse to bend. The company said it needs unanimous support from its bank lenders -- including two current holdouts -- to avoid a prepackaged bankruptcy plan that would hurt all investors except its bondholders. Mirant is floating a plan that would place bankers and bondholders on equal footing if they provide the $4.9 billion in financing the company needs to avert bankruptcy. The plan includes a $1.45 billion bond swap and provides brand-new security for all creditors involved. But the company, feeling resistance from its bank group, has asked bondholders to go ahead and approve a prepackaged bankruptcy in case its preferred plan falls through. "After a great deal of analysis, we concluded that this bond debt restructuring, coupled with a concurrent bank debt restructuring, is the best way for all of our creditors to receive full payment for what we owe them, while taking steps to preserve value for our shareholders," said CEO Marce Fuller. "Our strong preference is to do this out of court -- and we are hopeful we can do so." But the stock tanked on the news. Shares of Mirant tumbled 16%, falling 53 cents, to $2.87. Fresh bankruptcy fears put pressure on the entire merchant energy group, interrupting a strong rally that had doubled Mirant's share price in recent months.
Strong on the Glass
But some, including Blaylock analyst Lasan Johong, viewed Mirant's setback as temporary and predicted a rebound for the stock. He downplayed any real chances of bankruptcy, saying that Mirant is simply taking a "negotiating stance" with its creditors. He expects bondholders to approve both the swap and the prepackaged bankruptcy. And in an effort to avoid a "cram-down" reorganization plan, he believes the bankers will hammer out a deal with Reliant, possibly offering lower interest rates in exchange for shorter maturities that will ensure that the banks get paid off first.